Expanded Protections for Directors Navigating the Zone of Insolvency
In 1991, a decision of the Delaware Chancery Court helped popularize the term "zone of insolvency.”[1] In the intervening 16 years, numerous courts and commentators have cited this decision as standing for the proposition that the directors of a Delaware corporation that is either insolvent or in the zone of insolvency owe fiduciary duties to the creditors, as well as to the shareholders, of the corporation. In a pair of landmark decisions this year, the Delaware Supreme Court addressed two fundamental issues and, thereby, expanded the protections available to directors navigating the zone of insolvency:
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the extent to which a creditor may bring a claim against the directors of a corporation that is insolvent or operating in the zone of insolvency; and
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the extent to which a creditor may bring a claim against the directors of a corporation for "deepening insolvency."
[1] Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613 (Del. Ch. 1991).
Securities Law 360 Q&A
In the latest of a series of chats with high-profile securities lawyers, Securities Law 360 conducted a Q&A session with Sheppard Mullin partner Robert D. Rose.
The Importance of Well-Crafted MAE Provisions: Sallie Mae in Courtroom Battle with J.C. Flowers-led Buyout Group
As of October 24, 2007, Sallie Mae and the buyout group led by J.C. Flowers have failed to negotiate an agreement on dropping conditions of the buyout deal that prevent Sallie Mae from talking to other potential suitors. This comes following the buyout group's assertion that a Material Adverse Effect has occurred and that it does not intend to proceed with the buyout deal. In response to the buyout group's "cold feet," Sallie Mae filed suit in Delaware seeking payment of a $900 million termination fee.
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