Deepening Insolvency: Pitfall For Private Equity Firms

Law360, New York (July 16, 2008, 12:00 AM EDT) -- A recent decision by the Delaware bankruptcy court highlights the issues which must be considered by private equity firms, investment funds and other entities who play an active role in the management of their financially distressed portfolio companies.

Although barred as an independent cause of action, the Delaware bankruptcy court recently decided in In re Brown Schools that the theory of deepening insolvency may be used to measure damages when directors and officers have breached their fiduciary duties of care and loyalty by allowing a company...
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