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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.


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