Beware of Fiduciary Duties to Creditors Different for Corporations and LLCs

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. The decision effectively precludes creditors of insolvent limited liability companies from suing members and managers for breaches of fiduciary duties owed to the company, unless they amend the company's limited liability operating agreement to provide directly that such duties are owed to creditors.