Delaware Court Limits Scope Of “Zone of Insolvency”

Law360, New York (November 7, 2007, 12:00 AM EST) -- In a significant Delaware law decision regarding creditors’ ability to sue corporate fiduciaries, the Delaware Supreme Court recently addressed the issue of whether a corporate director owes fiduciary duties to the creditors of a company that is insolvent or in the “zone of insolvency.”

In North American Catholic Educ. Programming Found. Inc. v. Gheewalla, the court concluded that directors of a solvent Delaware corporation that is operating in the zone of insolvency owe their fiduciary duties to the corporation and its shareholders, and not creditors....
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