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Rather, the law is that the Trenwick America directors were obligated to manage

Trenwick America with loyalty to Trenwick, the company’s sole stockholder. To the

extent that the Trenwick America directors acceded to their parent’s wishes and lent

support to its business strategy, there is no basis to fault them.

That is even so if the Trenwick America board took actions that made Trenwick

America less valuable as an entity. If the Trenwick America board authorized the

subsidiary to provide (as it appears to have done) guarantees to Trenwick’s creditors that

supported Trenwick’s overall business, they would have been managing the subsidiary to

benefit its parent: a proper goal. Such guarantees may reduce the value of the subsidiary

conceived as a stand-alone entity but that in itself is of no moment. The payment of a

dividend from a subsidiary to a parent does the same thing. If the dividend remains in the

subsidiary, the subsidiary is better able to satisfy the future claims of creditors and to

conduct its own operations. In pondering whether to pay a dividend, however, a

subsidiary board is permitted to act to benefit its parent, not simply the subsidiary itself,

for the obvious reason that wholly-owned subsidiaries are formed by parents to benefit

the parents, and not for their own sake.94

Again, the implications of the complaint’s incantation of the word “insolvency”

must be considered. To begin with, I reiterate that the complaint fails to plead facts

supporting a rational inference that Trenwick America was insolvent before any of the

challenged transactions or that any of the challenged transactions would, when


“It is by no means a novel concept of corporate law that a wholly-owned subsidiary functions

to benefit its parent.”

, 2000 WL 982401, at *12 (Del. Ch. July

12, 2000);

, 550 A.2d 1105, 1124 (Del. 1988) (same).


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