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Trenwick America

By Louis Salazar
September 27, 2006

The September Issue of this newsletter discussed the Delaware Bankruptcy Court's recent decision, In re Scott Acquisition Corp., 2006 WL 1732277 (Bankr. D. Del. 2006), which ruled that directors and officers of insolvent subsidiary companies owe fiduciary duties to both its creditors and the subsidiary itself. Hot on the heels of that decision, the Delaware Chancery Court, Vice-Chancellor Leo E. Strine presiding, has again waded into the breach of fiduciary duty and zone of insolvency arena with its decision in Trenwick America Litigation Trust v. Ernst & Young, L.L.P., et al., ___ A. 2d ___, 2006 WL 2434228 (Del. Ch. 2006).

This decision strongly upholds the business-judgment protection for directors and officers who appropriately exercise their duties, even in the face of subsequent and complete business failure, and eviscerates Deepening Insolvency as a viable cause of action under Delaware law, continuing the recent case law trend in this direction.

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