What Distressed Cos. Can Take Away from Quadrant v. Vertin
On May 4, 2015, the Delaware Court of Chancery issued an opinion in Quadrant Structured Products Co. Ltd. v. Vertin that provides important guidance to those counseling distressed Delaware corporations and their stakeholders. The issue in Vertin was whether a creditor suing derivatively on behalf of an insolvent corporation loses standing to maintain that lawsuit if the corporation becomes solvent while the lawsuit is pending. In a matter of first impression, the Court of Chancery held that the creditor does not lose standing, but rather standing is determined as of the date the suit was filed.
In addition to rejecting this “continuous insolvency” requirement, the Court of Chancery also rejected an “irretrievable insolvency” requirement for standing purposes. The court’s analysis of an “irretrievable insolvency” requirement contains a discussion that, while dicta, provides guidance for corporations and their advisers in performing a solvency analysis. Last, but not least, Vertin also provides a concise analysis of the developments in Delaware fiduciary duty law with respect to insolvent corporations over the years and where that law currently stands.
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Eric S. Klinger-Wilensky, Matthew B. Harvey, “What Distressed Cos. Can Take Away from Quadrant v. Vertin,” Law360 (May 28, 2015)