In a decision that may come as a surprise to many, the Court of Chancery of the State of Delaware (the “Court”) recently dismissed a derivative suit brought by a creditor on behalf of an insolvent limited liability company. See CML V, LLC v. Bax et al., 6 A.3d 238 (Del. Ch. 2010)(JetDirect Aviation Holdings, LLC, Nominal Defendant).
In a recent decision, CML V, LLC v. Bax, et al., C.A. No 5373-VCL (Del. Ch. Nov. 3, 2010), the Delaware Court of Chancery held that, unlike Delaware corporations, creditors of an insolvent Delaware limited liability company cannot bring derivative actions against the members or managers of the company unless they specifically contract for such rights.
A decision recently handed down by the Delaware Chancery Court, CML V, LLC v. Bax, indicates that creditors of a limited liability company (“LLC”) organized under Delaware law do not have standing to institute derivative suits against an LLC’s management, even when the LLC is insolvent, unless the right is expressly set forth in the LLC’s organizational documents or external agreements.
Background
In 2007, the Delaware Supreme Court issued an important ruling for creditors of insolvent corporations. It held that such creditors had standing to assert derivative claims for breaches of fiduciary duties against directors of an insolvent corporation.1 But, as the Delaware Court of Chancery recently made clear, there is a big difference between Delaware limited liability companies (LLCs) and their corporate cousins.
The Court of Chancery of Delaware ruled that counsel failed to establish "excusable neglect" when it requested additional time to submit an expert witness report after the deadline for that report—as provided for in the court's previously issued scheduling order—had expired.
A just-issued Court of Chancery decision clarifies, and possibly expands, creditors' rights. In 2007, the Delaware Supreme Court ruled that a corporation's creditors may sue its board of directors for violating its fiduciary duties, but only after the corporation became insolvent, in North American Catholic Educational Programming Foundation v. Gheewalla, 930 A.2d 92 (Del. 2007). While creditors continued to be unable to sue directly, Gheewalla did permit them to file derivative suits in those circumstances.
The Court of Chancery of Delaware recently issued a noteworthy decision clarifying fiduciary duties and confirming business judgment rule protection for board-level business strategy decisions by directors of insolvent corporations.1 Quadrant Structured Products Company v. Vertin, 102 A.3d 155 (Del. Ch. 2014).
On May 22, 2014, the Delaware Supreme Court, applying New York law, affirmed the dismissal of an action brought by Plaintiff noteholders against other noteholders under an indenture for approving amendments with which Plaintiffs disagreed.
In this memorandum opinion, the Court of Chancery declined to reopen the trial record and granted a plaintiffs’ motion to exclude post-trial evidence proffered by a defendant.In reaching its conclusion, the Court found that none of the factors for reopening a trial record articulated in Pope Invs. LLC v. Benda Pharm, Inc., 2010 WL 3075296, at *1 (Del. Ch.
The Delaware Supreme Court recently offered new insight into a dissolved corporation’s exposure to liability for third party claims. InAnderson v. Krafft-Murphy Company, Inc.,1 the Court held as a matter of first impression in Delaware that the statutory scheme governing the dissolution and winding up of a Delaware corporation does not contain a general statute of limitations that would shield a dissolved corporation from liability.
I. Factual Background and Procedural History2