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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Court Of Chancery Denies Advancement For Predecessor Liability
In general, a successor entity is not liable for its predecessor's obligations when there has been a fundamental change in the identity of the entity. Here, the Court held that the conversion of a corporation into an LLC did not make the LLC obligated to advance attorney fees for claims that arose out of actions taken while a director of the predecessor corporation. The decision turned on the terms of the LLC's advancement provisions in its operating agreement. Hence, if you want to include a right to advancement for actions taken for the predecessor entity, you had better say so. Note also that the result may well have been different for a claim for indemnification after a merger because the merger statute provides that obligations of an entity in a corporate merger pass to a resulting entity after a merger.