ARTICLE
21 November 2014

Appointing Receiver To An Insolvent Corporation Under Section 291 Of The DGCL: Who Has Standing To Seek Appointment?

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Pierson Ferdinand LLP

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Under Section 291 of the DGCL, only shareholders or creditors have standing to seek the appointment of a receiver to an insolvent Delaware corporation.
United States Litigation, Mediation & Arbitration

Under Section 291 of the DGCL, only shareholders or creditors have standing to seek the appointment of a receiver to an insolvent Delaware corporation.  However, Delaware cases have interpreted the term "creditor" broadly to include not only judgment creditors, but also contract creditors as well as creditors at large.

For example, parties maintaining a claim for damages for breach of contract have been held to have standing to assert a Section 291 action.  See  Velcut Co. v. U.S. Wrench Mfg.  Co., 140 A. 801, 802 (Del. Ch. 1928); Mackenzie Oil Co. v. Omar Oil & Gas Co., 120 A. 852, 854 (Del. Ch. 1923).  In addition, holders of bonds that were not yet due but as to which matured interest coupons were in default were likewise deemed to have standing by the Court.  See  Noble v. European Mtg. & Inv. Corp., 165 A. 157, 159 (Del. Ch. 1933).

Of note, the ability of a bondholder to seek the appointment of a receiver under this statute may be limited by the terms of the bond indenture itself.  See  Elliot Assocs., L.P. v. Bio-Response, Inc., 1989 Del. Ch. LEXIS 63 at, *15-*19 (May 23, 1989).

These cases should be considered by any party considering the appointment of a receiver to an insolvent corporation to determine whether they possess the requisite standing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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