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Court Of Chancery Upholds Derivative Suit By Preferred Stockholder

MCG Capital Corporation v. Maginn, C.A. 4521-CC (May 5, 2010)

This decision addresses the prevously unanswered question of whether preferred stockholders may bring a derivative suit.  They can.  While to some this may seem obvious, the answer was by no means all that certain.  In recent years the Delaware courts have consistently cut back on the rights of preferred stockholders and creditors to allege fiduciary duty claims. Now warrant holders and creditors may not sue derivatively [except when the entity is insolvent].  Hence, the right of preferred stockholders to do so was at least questionable.

This decision is also an excellent collection of the law on what claims preferred stockholders may bring, particularly on the limits to assert breach of fiduciary duty claims.

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