that Delaware law does not recognize this catchy term as a cause of action, because
catchy though the term may be, it does not express a coherent concept. Even when a firm
is insolvent, its directors may, in the appropriate exercise of their business judgment, take
action that might, if it does not pan out, result in the firm being painted in a deeper hue of
red. The fact that the residual claimants of the firm at that time are creditors does not
mean that the directors cannot choose to continue the firm’s operations in the hope that
they can expand the inadequate pie such that the firm’s creditors get a greater recovery.
By doing so, the directors do not become a guarantor of success. Put simply, under
Delaware law, “deepening insolvency” is no more of a cause of action when a firm is
insolvent than a cause of action for “shallowing profitability” would be when a firm is
solvent. Existing equitable causes of action for breach of fiduciary duty, and existing
legal causes of action for fraud, fraudulent conveyance, and breach of contract are the
appropriate means by which to challenge the actions of boards of insolvent corporations.
Refusal to embrace deepening insolvency as a cause of action is required by
settled principles of Delaware law. So, too, is a refusal to extend to creditors a solicitude
not given to equityholders. Creditors are better placed than equityholders and other
corporate constituencies (think employees) to protect themselves against the risk of firm
The incantation of the word insolvency, or even more amorphously, the words
zone of insolvency should not declare open season on corporate fiduciaries. Directors are
expected to seek profit for stockholders, even at risk of failure. With the prospect of
profit often comes the potential for defeat.