Beware Damages Based On 'Deepening Insolvency'

Law360, New York (June 13, 2008, 12:00 AM EDT) -- Private equity firms with troubled companies in their portfolio, as well as directors and officers of those portfolio companies, must carefully weigh the consequences of their decision-making, following a recent bankruptcy court decision that raises the specter that these parties can face claims, such as a breach of their fiduciary duty of loyalty, resulting in damages based on the theory of “deepening insolvency.”

Deepening insolvency generally refers to liability imposed on officers and directors of insolvent companies that incur further losses to the detriment of creditors....
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