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Creditors’ rights continue to evolve in Delaware courts.

New areas of the law usually undergo an evolutionary process, and that is clearly the case with regard to the rights of creditors and the duties owed by the management of companies to which they lend money.

In 1991, in Credit Lyonnais Bank v. Pathe Comm. Corp., the Delaware Court of Chancery held that directors did not breach their fiduciary duties by considering the interests of creditors (as opposed to just stockholders) when making decisions.

Section 18-1002 of the LLC Act states that “[i]n a derivative action, the plaintiff must be a member or an assignee” of an LLC. The court held that “the plain language of 6 Del. C. § 18-1002 is unambiguous and limits derivative standing in LLCs exclusively to ‘member[s]’ or ‘assignee[s].’”

The analysis in CML makes perfect sense, but Section 327 of the Delaware General Corporation Law (DGCL), which governs derivative standing for general corporations, states that “[i]n any derivative suit…it shall be averred in the complaint that the plaintiff was a stockholder…” A creditor cannot make  such an averment, so why didn’t the c ourt in Gheewalla hold that Section 327 limits derivative standing exclusively to stockholders?


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John Reed

John Reed is a partner the Delaware office of DLA Piper, where he concentrates his practice on corporate litigation and counseling. He can be contacted...

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