More Clarity for Delaware Directors When Considering Restructuring Transactions

SUMMARY

In Quadrant Structured Products Co., Ltd. v. Vertin (May 4, 2015) (“Quadrant”), the Delaware Court of Chancery confirms – again – that ordinary corporate fiduciary duties govern the conduct of directors of an insolvent corporation, rather than a special duty to creditors. The Court also clarifies the circumstances in which creditors may have derivative standing to enforce those fiduciary duties on behalf of an insolvent corporation.

On May 8, 2015, Airborne Media Group, Inc. filed a voluntary chapter 11 petition in the United States Bankruptcy Court for the District of Delaware.  The voluntary petition was filed after several creditors commenced an involuntary chapter 11 case in Colorado on April 17, 2015.  The chapter 11 case has been docketed as case no. 15-11018 and has been assigned to The Honorable Kevin Gross.

Judge Vincent Bricetti of the United States District Court for the Southern District of New York issued a ruling in the Momentive Performance Materialscases affirming the Bankruptcy Court’s confirmation rulings on Monday, May 4.  Key themes raised in this case of interest to distressed investors and addressed in Judge Bricetti’s ruling include the appropriate interpretation of

Upon the filing of a bankruptcy petition, an automatic stay goes into effect which provides a debtor with immediate protection from collection efforts by creditors. But the automatic stay is not without limitations.

Two recent decisions from large and highly contested chapter 11 cases add to the developing body of case law on the treatment of make-whole claims in bankruptcy.  First, in a two-part post, we discuss the United States Bankruptcy Court for the District of Delaware’s decision in Energy Future Holdings, and later, in a follow-up post, we discuss the United States District Court for the Southern District of

Rule 2004 Examination in Bankruptcy

People often enter into agreements through which a person or entity borrows money in exchange for a security interest on property that he or it owns. However, in drafting an agreement which establishes a security interest, it is important to make sure that the document is legally enforceable. The bankruptcy court’s order granting summary judgment in Theresa Bender v. Christopher James, Case No. 14-01001-KKS, ECF No. 50 (Bankr. N.D. Fla. Feb. 11, 2015) demonstrates the importance of making sure that such an agreement contains an adequate description of the collateral.

Field v. Bank of America, N.A. (In re Gibbs), 522 B.R. 282 (Bankr. D. Hawaii 2014) –

A bankruptcy trustee sued a mortgage lender to recover for defects in a prepetition non-judicial foreclosure sale. The lender brought a motion to dismiss for failure to state a claim.  The primary focus of the court was on claims under the state Unfair and Deceptive Acts or Trade Practices (UDAP) law.

“A corporate insider who personally guaranteed” the debtor’s loan was not liable on a bankruptcy trustee’s preference claim when the corporate debtor repaid its lender, held the U.S. Court of Appeals for the Ninth Circuit on May 6, 2015. In re Adamson Apparel, Inc., 2015 WL 2081575 (9th Cir. May 6, 2015) (2-1).

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.