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.

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.