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.

In Quadrant Structured Products Co. v. Vertin, 2015 WL 2062115 (Del. Ch. May 4, 2015), the Delaware Court of Chancery (Vice Chancellor J. Travis Laster) announced a bright-line standard governing the threshold inquiry of when a creditor can maintain a derivative suit against directors for breach of fiduciary duty. The court held that a creditor need only establish that the company was balance sheet insolvent at the time the suit was filed and that the creditor’s standing will not be extinguished if the company rides back into solvency during the litigation.

In a ruling of much consequence to secured lenders everywhere, the Delaware Supreme Court held in Motors Liquidations v. JPMorgan Chase Bank that filing an incorrect UCC-3 termination statement can be a costly mistake.

THE UCC-3 TERMINATION STATEMENT

Whenever a UCC-3 termination statement is being filed, all parties need to carefully review such termination statement to make sure the termination statement is releasing the secured interests that the parties intend to be released.  Failing to diligently review termination statements can lead to the inadvertent release of a security interest that a secured party may not intend to release.

An opinion from the Second Circuit Court of Appeals in In re Motors Liquidation Company, relying on the Delaware Supreme Court’s answer to a certified question highlight the need to focus on the details w

The Delaware Supreme Court ruled last fall that a UCC termination statement inadvertently releasing collateral on a $1.5 billion term loan was valid. The creditor could not later claim it did not intend to include the collateral in its release of other collateral with regard to a different credit facility.   Official Committee of Unsecured Creditors v. JPMorgan Chase Bank, NA (Del. 2014).

On October 27, 2014, the Delaware Supreme Court ruled that even inadvertent mistakes in UCC filings count, and the burden rests on the filing party to detect errors, and not on affected parties who come across them in a search. This ruling upsets a 2013 decision of a bankruptcy court and will ultimately determine the character of a $1.5 billion security interest in the General Motors (GM) bankruptcy.

Background

According to a recent decision from the Delaware Supreme Court, a secured party bears the burden of any mistakes in its security documents.  Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., No. 325, 2014 Del. LEXIS 491 (Del. Oct. 17, 2014) (“Del.

On October 17, 2014, the Delaware Supreme Court held that under the Delaware Uniform Commercial Code, the subjective intent of a secured party is irrelevant in determining the effectiveness of a UCC-3 termination statement if the secured party authorized its filing.[1]  

Background

On Oct. 27, the Delaware Supreme Court ruled that even inadvertent mistakes in UCC filings count – the burden rests on the filing party to detect errors, and not on affected parties who come across them in a search. This ruling upsets the 2013 decision of the bankruptcy court and will ultimately determine the character of a $1.5 billion security interest in the General Motors (GM) bankruptcy.

Background