Earlier this month, inCML V LLC v. Bax , the Delaware Supreme Court held that a creditor of an insolvent limited liability company lacks standing under the Delaware Limited Liability Company Act to bring a derivative action against the LLC’s former managers.
In so doing, the court gave effect to the plain meaning of the LLC Act and drew a sharp distinction between the rights of creditors of insolvent LLCs and those of creditors of insolvent corporations. The court also rejected the argument that the LLC Act is unconstitutional if it bars the Court of Chancery from exercising its equitable jurisdiction to extend standing to sue derivatively in cases where derivative standing is necessary to prevent a complete failure of justice.
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