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ARTICLE · 21 AUGUST 2007

Dismiss That Lawsuit!

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Recent Delaware Governance Decisions Restrict Creditor Litigation Against Boards of Troubled Companies and Distressed Debt Investors

United StatesInsolvency/Bankruptcy/Re-Structuring
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By Proskauer Rose LLP's Bankruptcy and Reorganization Practice Group

Recent Delaware Governance Decisions Restrict Creditor Litigation Against Boards of Troubled Companies and Distressed Debt Investors

A series of recent corporate governance decisions by the Delaware state courts—the NACEPF, Production Resources and Trenwick cases—read in conjunction with last November’s Delaware bankruptcy court decision, In re Radnor Holdings Corp.,1 which rejected equitable subordination and recharacterization claims against an investor/lender that held board seats and permitted such lender’s credit bid for the company’s assets, provides investors, officers and directors with guidance and comfort as they navigate the waters of corporate restructurings, allowing them to take significant and active roles in the reorganization of troubled companies with greater certainty of successfully defending potential lawsuits by disgruntled creditors.

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