Delaware Courts Clarify Fiduciary Duties Owed By Directors Of
Troubled Companies
By Samuel Wales and Emily Garrison
Two recent decisions by the Delaware Supreme Court clarify the
fiduciary duties owed to creditors by directors of Delaware
corporations that are insolvent or operating in the zone of
insolvency. First, in North American Catholic Educational
Programming Foundation, Inc. v. Gheewalla, the Delaware Supreme
Court, in a case of first impression, addressed the ability of
creditors to assert claims for breach of fiduciary duty against
directors of a Delaware corporation that is insolvent or operating
within the zone of insolvency. The Delaware Supreme Court
unequivocally held that, as a matter of law, a creditor cannot
assert a direct claim in either situation and that, when a
corporation is insolvent, a creditor can only assert a derivative
claim for breach of fiduciary duty against the corporation's
directors. See Gheewalla, 930 A.2d 92, 103 (Del. 2007).
