Del. Defines Derivative Standing Of Creditors Committees

Law360, New York (July 1, 2015, 10:34 AM EDT) -- Prospective Chapter 11 debtors often find themselves desperate for liquidity before a bankruptcy filing and are forced to accept debtor-in-possession financing terms from their existing lenders, who are the debtors' only source of liquidity. Debtors rarely have the leverage or ability to avoid releasing claims against their existing lenders as part of a debtor-in-possession financing package. Equally improbable, debtors' boards of directors (in cases where the court has not appointed a trustee), fearing reputational harm, rarely choose to bring litigation claims against themselves for any failure in their roles as officers or directors, or against the counterparties to business transactions that they themselves previously authorized. This paradox "immediately gives rise to the proverbial problem of the fox guarding the henhouse" because "if managers can devise any opportunity to avoid bringing a claim that would amount to reputational self-immolation, they will seize it."[1]...

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