In early February, a Delaware bankruptcy judge set new precedent by granting a creditors' committee derivative standing to pursue breach of fiduciary duty claims against a Delaware LLC's members and officers. At least three prior Delaware Bankruptcy Court decisions had held that creditors were barred from pursuing such derivative claims by operation of Delaware state law, specifically under the Delaware Limited Liability Company Act (the "DLLCA").
Generally speaking, under bankruptcy law, a creditor can step into the shoes of the debtor to pursue debtor claims (referred to as derivative standing). Such derivative claims can be a valuable source of recovery for a bankruptcy estate and its creditors, especially claims against directors and officers which often times have insurance coverage. However, Delaware state law limits a creditor's ability to bring these derivative claims on behalf of a Delaware LLC debtor, and, until this recent decision, Delaware bankruptcy courts had upheld such limitation.
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