The US Court of Appeals for the Ninth Circuit recently held that a creditor of a bankrupt corporation may assert alter ego claims against the corporation’s sole shareholders. The California Court of Appeals for the Second Appellate District not only supports the Ninth Circuit’s decision but has recently taken it one step further, holding that alter ego allegations are not even subject to the automatic bankruptcy stay.

Full text of the Court's opinion

In a 7-0 decision, the Ohio Supreme Court in Hudson v. Petrosurance, Inc., Slip Opinion No. 2010-Ohio-4505, held that the Ohio's Liquidation Act does not authorize the Superintendent of Insurance to pay interest to an insurer’s creditors and other preferred claimants on allowed claims before paying the funds remaining in the insolvent estate to the insurer's shareholders.

In a troubled economy where businesses are struggling to survive, it is no surprise that many organizations find themselves insolvent or nearly insolvent. Directors of insolvent or nearly insolvent organizations are facing the question of to whom they owe their duty of loyalty, and whose best interest must they consider when making decisions. When in the zone of insolvency, directors still owe a duty to stakeholders to act in their best interests.

Yellowstone Mountain Club LLC (Yellowstone Club) developed land near Yellowstone National Park in Montana as a high-end residential development with a private ski and golf club.

The development of Yellowstone Club didn’t progress as promptly or as smoothly as projected. Memberships ended up being sold at substantially discounted prices.

Centimark Corp. v. Pegnato & Pegnato Roof Mngt, Inc., Case No. 05-708 (W.D. Pa. May 6, 2008)