Delaware Courts Affirm Guidance for Directors in Distressed Situations

The Delaware Supreme Court and the Court of Chancery recently issued guidance for directors navigating the complex fiduciary issues that arise around insolvency. That guidance, outlined in a series of decisions in Quadrant Structured Products Co., Ltd. v. Vertin, should give directors a measure of comfort in understanding the who, what, when, and how of fulfilling fiduciary duties in these situations.

The question of who may bring a breach of fiduciary duty claim was central to these decisions. Quadrant, a creditor of credit protection company Athilon Capital Corp., sued Athilon’s directors on several grounds, including breach of fiduciary duty, after the company allegedly became insolvent in 2010. The Court of Chancery ruled that the plaintiff lacked standing because that claim was added to the plaintiff’s complaint after Athilon regained solvency. The Supreme Court’s decision affirms that while the company is solvent, only stockholders may bring fiduciary duty claims.

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Nathan P. Emeritz, Matthew B. Harvey, “Delaware Courts Affirm Guidance for Directors in Distressed Situations,” NACD Directorship: Delaware Watch, (May/June 2017).