The Supreme Court of the State of Delaware recently reversed a Court of Chancery decision declining to appoint a receiver for a dissolved Delaware corporation, Krafft-Murphy Company, Inc. (Krafft). The Chancery Court determined that a receiver was inappropriate because Krafft had no property for the receiver to distribute to potential tort victims. The Supreme Court disagreed, holding that an unexhausted insurance policy is property of the dissolved company even after its three-year wind-up period under Delaware law.
In Anderson v Krafft-Murphy Co. Inc., 2013 Del. LEXIS 597 (Del. Nov. 26, 2013), the Delaware Supreme Court held that Sections 278 and 279 of the Delaware General Corporation Law, 8 Del. C.
In this opinion, the Court of Chancery denied a motion for judgment on the pleadings by certain asbestos claimants (the “Claimants”) seeking appointment of a receiver under 8 Del. C. § 279, holding that the dissolved corporation was not amenable to suits commenced more than ten years after its dissolution and, therefore, the insurance liability contracts held by the dissolved corporation were valueless, rendering appointment of a receiver unnecessary. The Court also granted an opposing motion for summary judgment on behalf of the dissolved corporation.
In this memorandum opinion, the Court of Chancery held that plaintiff note holders waived their statutory right to seek appointment of a receiver for a debtor corporation where the notes they purchased were subject to clear language in a “No-Action Clause” of the governing indenture, which prohibited such action unless certain requirements were met.
In the case of Wagamon v. Dolan, C.A. No. 5594-VCG (Del. Ch. Apr. 20, 2012), the Court of Chancery reviewed Defendant William Krieg’s motion for summary judgment pursuant to Court of Chancery Rule 56. This dispute involves the winding up of a joint venture, Internet Working Technologies, Inc. (“INT”) owned by Allan Wagamon and David B.
CML V, LLC v. Bax, et al., 2011 Del. LEXIS 480 (Del. Sept. 2, 2011)
CASE SNAPSHOT
Affirming the decision of the Court of Chancery for the State of Delaware, the Delaware Supreme Court held that, unlike corporate creditors, creditors of a Delaware Limited Liability Company do not have standing to sue the LLC’s officers derivatively on behalf of an insolvent LLC.
FACTUAL BACKGROUND
In this memorandum opinion, the Court of Chancery denied a motion filed on behalf of a dissolved corporation to dismiss a petition for the appointment of a receiver under 8 Del. C. § 279, ruling that the petitioners might “conceivably” demonstrate entitlement to such appointment in light of their factual allegations concerning the dissolved corporation’s “plan of dissolution” under 8 Del. C. § 281(b). The Court also granted the petitioners’ motion to perfect service upon the dissolved corporation and denied the motion to dismiss for insufficiency of service of process.
The Supreme Court of Delaware recently held that creditors of insolvent Delaware limited liability companies (LLCs) lack standing to bring derivative suits on behalf of the LLCs.
In March 2010, CML V brought both derivative and direct claims against the present and former managers of JetDirect Aviation Holdings LLC in the Court of Chancery after JetDirect defaulted on its loan obligations to CML. The Vice Chancellor dismissed all the claims, finding that, as a creditor, CML lacked standing to bring derivative claims on behalf of JetDirect, and CML appealed.
On September 2, the Delaware Supreme Court affirmed a holding by the Court of Chancery that creditors of insolvent Delaware limited liability companies do not have standing to sue derivatively. This contrasts with Delaware corporations: the Delaware courts have recognized that when a corporation becomes insolvent, creditors become the residual risk-bearers and are permitted to sue derivatively on behalf of a corporation to the same extent as stockholders.
The opinion issued by the Delaware Supreme Court (the “Court”) in the matter of CML V, LLC v. Bax, No. 735, 2010 (Del. Supr. Sept.