The Fifth Circuit recently issued an opinion addressing an important issue with respect to the preservation of a debtor's causes of action in a Chapter 11 plan of reorganization. The Fifth Circuit held that a reorganized debtor lacked standing to pursue certain common-law claims that were based on the pre-confirmation management of the bankruptcy estate's assets.

Directors and officers of troubled companies are already keenly cognizant of their potential liability for any breaches of fiduciary duty, negligence and fraud.

Do officers of a public corporation have an affirmative obligation to monitor corporate affairs? Yes, according to Judge Walsh in his recently issued memorandum opinion in Miller v. McDonald (In re World Health Alternatives, Inc.).1 Although "Caremark" oversight liability had previously generally only been imposed on directors of public corporations, the Bankruptcy Court for the District of Delaware determined that officers are not immune from such liability as a matter of law.

On May 18, 2007, in North American Catholic Educational Programming Foundation, Inc. v. Gheewalla (“Gheewalla”),1 the Delaware Supreme Court affirmed the Delaware Court of Chancery’s decision2 in which the Court of Chancery precluded creditors from filing direct suits for breach of fiduciary duty against directors of corporations that are either in the zone of insolvency or are actually insolvent. With its decision, the Delaware Supreme Court has limited creditors’ ability to sue directors for breach of fiduciary duty.

In a recent ruling likely to be of great interest to debtors and creditors alike, the United States District Court for the Northern District of Georgia (the “Court”) ruled in MC Asset Recovery v. Southern Company1 (the “Southern Co. Litigation”) that fraudulent transfer claims held by a bankruptcy trustee or debtor in possession under the Bankruptcy Code continue to be viable at the conclusion of a bankruptcy case, even if all creditors’ claims have already been satisfied in full pursuant to a plan of reorganization.

Two recent Federal appeals court decisions — one issued by the Fifth, the other by the Second Circuit — illustrate the dangers of careless drafting of bankruptcy and reorganization plans. In the Fifth Circuit decision, a drafting error prevented a company reorganized under Chapter 11 from suing the administrators of its property during its bankruptcy for fraud, breach of fiduciary duty and negligence, thereby potentially depriving its creditors of bankruptcy assets.

On May 4, 2015, the Delaware Court of Chancery issued an important decision regarding creditor standing to  maintain a derivative action on behalf of an insolvent corporation. In Quadrant Structured Products Company v. Vertin et al., C.A. No.

The Bottom Line:

The Bottom Line:

On the Friday before Labor Day, Judge James Peck of the United States Bankruptcy Court for the Southern District of New York shocked the distressed bond market by dismissing the preference and fraudulent transfer counts of Iridium LLC Creditors Committee’s $3.7 billion adversary proceeding against Motorola, Inc. Judge Peck found that the Committee had failed to prove that Iridium was insolvent at any time—even the day before bankruptcy. Iridium’s $1.6 billion in bonds dropped from the mid-20s to low single digits in days.