Catch A Waiver: Advanced Issues in Delaware Entity Lien Challenges

The Delaware LLC Act indirectly bars creditors from pursuing derivative claims on behalf of a Delaware LLC. Recent cases have applied these restrictions in bankruptcy cases to block creditors’ committees from pursuing breach of fiduciary duty claims against members of Delaware LLCs. A similar rationale has been applied to Delaware limited partnerships. Courts have also refused to permit subsequently appointed trustees from pursuing these claims. Although cases addressing this issue to date have applied these limitations only with respect to fiduciary duty claims, recent efforts to expand these limitations to other claims a creditors’ committee may seek to bring in a bankruptcy case involving Delaware LLCs and limited partnerships have created significant practical issues for creditors’ committees at the conclusion of their lien investigations. This article discusses some recent disputes regarding these state law statutory limitations before proposing an approach to limit the potential pitfalls associated with them.

Click below to read the full article as published in the April 2020 edition of the ABI Journal. 

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