Zones of Insolvency, Deepening Insolvency, and Litigation Risks to a Debtor's Officers, Directors, and Advisors

Thanks to our friends at the Delaware Litigation Blog, for letting us know of Professor Ribstein's works and Professor Bainbridge's works on the fiduciary duties of directors in the "zone of insolvency."

Along these lines, I also highly recommend a recent article reviewed at the NCBJ entitled "Deepening Insolvency," authored by J.B. Heaton (partner at Barlit Beck Herman Palenchar & Scott LLP). This well-researched article, published in the Spring 2005 issue of The Journal of Corporation Law (vol. 30, no. 3), provides an excellent summary of the development and current state of "this theory of corporate injury." In this article, Heaton writes:

Deepening insolvency theories originated in efforts to avoid imputing the wrongdoing of corporate directors and officers to a bankrupt plaintiff corporation by invoking the so-called "adverse interest exception" [to the in pari delicto doctrine], evolved to a theory of standing and damages, and finally "morphed" into an independent cause of action. (Citing In re Global Service Group LLC., 2004 Bankr. LEXIS 1702, at *11 (Bankr. S.D.N.Y., 11/4/04) (recognizing that "[w]hat began as a justification for recognizing the 'adverse interest' exception soon morphed into a theory of recovery")).


Steve Jakubowski

© Steve Jakubowski 2005

Written By:Francis Pileggi On November 7, 2005 9:55 AM

Thanks for the link.