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Court Of Chancery Denies Advancement For Predecessor Liability

Grace v. Ashbridge LLC, C.A. 8348-VCN (December 31, 2013)

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.

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