Earlier this month, the Delaware Chancery Court further clarified its position on the fiduciary duties of officers and directors of insolvent Delaware corporations. Specifically, in Quadrant Structured Products Company v. Vertin, the Chancery Court dismissed certain derivative claims brought by a creditor on behalf of Athilon Capital Corp. alleging breach of fiduciary duties by the company’s non-independent directors.1
According to the complaint, the non-independent directors pursued high-risk strategies and investments that disproportionately benefited director affiliates that held subordinated debt and equity but created significant risks for other creditors. However, the Chancery Court held that the plaintiff had failed to demonstrate that the directors’ affiliates had received a “direct and specific benefit” as a result of certain high-risk strategies. In the absence of such a direct benefit, the Chancery Court found that the strategies at issue were entitled to review under the deferential “business judgment” test and granted the defendants’ motion to dismiss all claims related to the board’s decision to take on greater risk.
Factual Background
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