## Facts

- Production Resources Group, L.L.C. (PRG) obtained an unpaid Connecticut judgment against NCT Group, Inc. (NCT) for roughly $2 million plus interest and was unable to collect.
- NCT continued operating despite alleged balance-sheet insolvency and inability to pay certain debts when due.
- NCT’s primary financing allegedly came from Carole Salkind, who purportedly obtained liens and securities positioning her ahead of other creditors and potentially giving her de facto control.
- PRG alleged NCT used a subsidiary, Distributed Media Corporation, to place new financing and assets beyond the reach of general creditors.
- NCT allegedly issued or pledged stock in amounts exceeding the number authorized in its charter and failed to hold annual meetings for multiple years.
- PRG sued in the Delaware Court of Chancery seeking (i) appointment of a receiver under 8 Del. C. § 291 and (ii) fiduciary duty relief against directors and a senior officer for conduct favoring Salkind and diverting value from NCT and its creditors.
- Defendants moved to dismiss, arguing (among other things) that a creditor lacked standing to assert fiduciary duty claims and that an exculpatory charter provision under 8 Del. C. § 102(b)(7) barred liability.

## Issues

1. Whether a judgment creditor stated a claim for appointment of a receiver for an allegedly insolvent Delaware corporation under 8 Del. C. § 291.
2. Whether creditors of an insolvent corporation have standing to pursue fiduciary duty claims in equity, and whether such claims are direct or derivative.
3. Whether a § 102(b)(7) exculpatory charter provision defeats creditor-brought fiduciary duty claims at the pleading stage, particularly where the allegations sound in loyalty or bad faith rather than care.

## Decision

- The court largely denied the motion to dismiss.
- The § 291 receiver claim survived because the complaint adequately alleged insolvency and circumstances that could make a discretionary receivership “just and proper.”
- Creditors of an insolvent corporation have standing to assert fiduciary duty claims derivatively on behalf of the corporation; PRG’s fiduciary duty theories were derivative rather than direct.
- The § 102(b)(7) exculpatory provision could limit monetary liability for duty-of-care claims, but it did not warrant dismissal of well-pled loyalty or bad-faith claims.

## Legal Principles

- Under 8 Del. C. § 291, the Court of Chancery may, in its discretion, appoint a receiver for an insolvent corporation when equity makes that relief just and proper; insolvency plus alleged inequitable conduct can be sufficient to proceed past pleading.
- Upon actual insolvency, creditors become the residual beneficiaries of the corporation’s value and therefore gain standing to enforce fiduciary duties derivatively; insolvency does not create a separate, direct fiduciary duty owed individually to each creditor.
- Claims alleging diversion of corporate value or conflicted transactions typically are derivative because the primary injury is to the corporation and any creditor harm is indirect.
- A § 102(b)(7) provision may exculpate directors from monetary liability for duty-of-care breaches, but it cannot exculpate loyalty breaches, bad faith, or intentional misconduct; such non-exculpable allegations generally cannot be dismissed solely on the basis of exculpation at the pleading stage.

## Conclusion

The court allowed a judgment creditor’s suit to proceed where the complaint plausibly alleged corporate insolvency and insider-favoring conduct: creditors of an insolvent Delaware corporation may pursue fiduciary duty claims derivatively, and charter exculpation does not bar claims framed as loyalty or bad-faith misconduct; the request for a discretionary receiver under § 291 also survived dismissal.


Production Res. Grp., L.L.C. v. NCT Grp., Inc., 863 A.2d 772 (Del. Ch. 2004)