As we have reported previously, the trading of debt of distressed companies, often with the objective of gaining control through loan-to-own strategies, is big business. The post-Lehman era has generated significant court decisions involving situations where a change of control occurs of insolvent companies outside of bankruptcy by distressed debt and equity players who then control the board. In many cases, the question is not if the company will be liquidated or sold, but when and how, and how it will be managed in the meantime. Many of these disputes are adjudicated in the Delaware courts.
In Quadrant Structured Products v. Vertin, No 6990-VCL, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery recently examined in detail claims for alleged breaches of fiduciary duty brought by a purchaser of an insolvent company's senior debt against the company's board of directors and its controlling shareholder, who had gained control of the company after purchasing its junior debt and the equity. The opinion should be of particular interest for insolvency practitioners.
The Challenged Decisions
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