Delaware Supreme Court Rules That Creditors Of A Delaware Corporation Cannot Bring Direct Claims Against Directors For Breach of Fiduciary Duty – But Questions Remain

In North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 2007 WL 1453705 (Del. May 18, 2007), the Delaware Supreme Court, in a case of first impression, provided some clarity on the controversial issue of whether and to what extent creditors have the ability to assert fiduciary duty claims against directors.  The Supreme Court held, unequivocally, that “creditors of a Delaware corporation that is either insolvent or in the zone of insolvency have no right, as a matter of law, to assert direct claims for breach of fiduciary against [a] corporation’s directors.”  Rather, the Court noted, creditors can protect their interests by asserting derivative fiduciary duty claims on behalf of an insolvent corporation or by asserting any applicable direct non-fiduciary duty-based claims.  To view a Client Advisory concerning this issue by Edwards Angell Palmer & Dodge’s Securities and Government Enforcement Group, please click here.