Two recent decisions by the Delaware Supreme Court clarify the fiduciary duties owed to creditors by directors of Delaware corporations that are insolvent or operating in the zone of insolvency. First, in North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, the Delaware Supreme Court, in a case of first impression, addressed the ability of creditors to assert claims for breach of fiduciary duty against directors of a Delaware corporation that is insolvent or operating within the zone of insolvency.

Re Cheyne Finance PLC

The UK courts recently interpreted the definition of insolvency in a way which can lead to an insolvency default being triggered earlier than before.

On 14 March 2008 the Court of First Instance (CFI) issued two orders rejecting applications for interim measures by two subsidiaries of a Polish steel producer (Buczek) to suspend the application of a Commission recovery decision pending the final judgment in the case. Between 1997 and 2003 Poland was granted a derogation from the general prohibition on restructuring aid to the steel sector. The derogation was conditional upon Poland implementing a restructuring plan. Aid was provided to Buczek, who failed to properly implement its restructuring plan and went bankrupt in 2006.

It is clear from the recent collapse of Bear Stearns that the real impact of the credit crunch is now being felt. With this in mind, how can landlords and tenants of commercial properties prepare themselves for a potential rise in the number of corporate insolvencies?

Landlords’ remedies – think outside the box

The landlord of a commercial property faced with an insolvent tenant will usually have two concerns:

On 14 February 2008 the German Federal Parliament deliberated a draft bill submitted by the Federal Ministry of Justice concerning the reform of Germany’s insolvency law. The draft bill envisions, in particular, regulation for stability against insolvency (Insolvenzfestigkeit) for licence agreements.

With commentators predicting that the real impact of last summer’s credit crunch on corporate liquidations has yet to be felt, how can landlords and tenants of commercial properties prepare for a potential rise in the number of corporate insolvencies?

LANDLORDS’ REMEDIES - THINK OUTSIDE THE BOX

The landlord of a commercial property faced with an insolvent tenant will usually have two concerns:

In a case involving a bankruptcy reorganization in which a trustee in bankruptcy was given the right to pursue claims of misappropriation or infringement (but not ownership of the bankrupt’s intellectual property), the U.S. Court of Appeals for the Federal Circuit reversed the district court finding that the no trustee had standing to bring suit. Morrow, et al. v. Microsoft Corp., Case Nos. 06-1512, -1518, -1537 (Fed. Cir., Sept. 19, 2007 (Moore, J.; Prost, J., dissenting).

The Polish metal tools manufacturer, Bison Bial (Bison), will be able to receive state aid amounting to €8.2m in order to enable the company to carry out a restructuring programme to improve the firm’s economic viability. After Bison entered into financial difficulties, Poland notified the European Commission that it wanted to provide aid to the company. The Commission decided that such aid was compatible with EU state aid rules, provided that the investment programme is fully implemented and the company sells one of its production divisions by the end of 2009.

Decision determines that silica trust and channeling injunction are appropriate under Third Circuit standards.

On September 24, 2007, the U.S. Bankruptcy Court for the Western District of Pennsylvania issued an opinion recommending confirmation of the Chapter 11 plans of North American Refractory Company (NARCO) and Global Industrial Technologies, Inc. (GIT). The decision caps a five-and-a-half-year reorganization for the Pittsburgh, Pennsylvania-based family of industrial companies.

The decision of the U.S. Bankruptcy Court in Hutson v. Smithfield Packing Co. (In re National Gas Distributors, LLC)1 poses potentially serious problems for parties trading gas under the North American Energy Standards Board (NAESB) base contract. The U.S. Court of Appeals for the Fourth Circuit will soon review this case of first impression about what constitutes a “swap agreement” under the expanded definition included in the U.S. Bankruptcy Code after the 2005 amendments.