Delaware law pervades bankruptcy proceedings often exploring what may be a conflict between the rights of an equity holder and the limitations on the exercise, or purported exercise, of creditor remedies. Recent decisions out of the Bankruptcy Court in the District of Delaware demonstrate this crossover.
In In re Pack Liquidating, Judge Craig T. Goldblatt explained, under the U.S. Court of Appeals for the Third Circuit precedent of Cybergenics, that although Delaware’s Limited Liability Company Act (Delaware LLC Act) prohibits creditors of a limited liability company (LLC) from suing the company’s members on a derivative theory of liability (i.e., breach of fiduciary duty), the Bankruptcy Code permits the Bankruptcy Court to confer standing on creditor committees to bring these same derivative actions “to ensure that a debtor-in-possession is performing its role in the best interests of the estate.” In re Pack Liquidating, LLC, Case No. 22-10797 (CTG) Dkt. No. 1231.
