Rights of Creditors Will be Determined by Contract Terms and Fraudulent Conveyance Statutes; Creditors’ Derivative Fiduciary Duty Claims Will Succeed Only in the Rarest of Circumstances—Quadrant v. Vertin

By: Abigail Pickering Bomba, Steven Epstein, Arthur Fleischer, Jr., Peter S. Golden, Brian T. Mangino, J.Christian Nahr, Philip Richter, Brad Eric Scheler, Robert C. Schwenkel, Gail Weinstein

In an important decision, Quadrant. v. Vertin (Oct. 20, 2015), the Delaware Court of Chancery emphasized that creditors' rights will flow out of the contractually agreed terms of the debt and that it will be a rare case in which creditors will be successful under derivative claims for breach of fiduciary duty. In the attached M&A Briefing, we discuss whether there is any factual context under which a creditor's breach of fiduciary duty claim might succeed. Based on the language of this decision and a prior decision in the case, it could be argued that a creditor's fiduciary duty claim with respect to a company's post-insolvency adoption of an equity value maximization plan could succeed only if the directors were so uncareful or so disloyal in formulating the plan, or the plan was so patently flawed, that the plan would not even pass muster under business judgment deference.

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