In prior posts we have discussed receivership actions commenced under Section 291 of the Delaware General Corporation Law (“DGCL”).  As a recap, under Section 291, a creditor may petition the Court of Chancery to place a receiver over an insolvent Delaware corporation.  What is noteworthy about a Section 291 action is that a sole creditor may petition the Court for the appointment of a receiver, regardless of the size of the corporation.

By contrast, under the United States Bankruptcy Code, when filing an involuntary bankruptcy action against a company, if the involuntary debtor has 12 or more creditors, then at least three creditors would be required to file an involuntary bankruptcy petition.  11 U.S.C.§ 303(b)(1).

Why this is significant is that in response to the filing of a Section 291 receivership action, a defending corporation may opt to file for bankruptcy to say the action receivership action.  Thus, the filing of a Section 291 action may indirectly lead to what may be an otherwise intended result of placing a company into bankruptcy.

Below are links to prior posts concerning the appointment of a receiver to an insolvent corporation under Section 291 of the DGCL:

Establishing Insolvency Under Section 291

Appointing Receiver to an Insolvent Corporation Under Section 291 of the DGCL: Who has Standing to Seek Appointment?

Appointment of a Receiver to an Insolvent Delaware Corporation

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.