## Facts

- Quadrant Structured Products Company, Ltd. (Quadrant) owned debt securities issued by Athilon Capital Corp. (Athilon), a Delaware corporation that dealt in credit default swaps and related investments.
- Athilon was controlled by EBF & Associates, L.P. (later known as Merced Capital, L.P.), which owned Athilon’s equity and also held Athilon’s junior subordinated notes.
- Quadrant alleged Athilon was insolvent and, acting “individually and derivatively” on Athilon’s behalf, asserted derivative claims against Athilon’s directors (including Vincent Vertin) for breach of fiduciary duty.
- Quadrant alleged that the directors shifted Athilon from relatively safer investments to a riskier strategy to transfer value to EBF and its affiliate, Athilon Structured Investment Advisors LLC, at the expense of Athilon and its creditors.
- Quadrant also pursued fraudulent transfer claims under the Delaware Uniform Fraudulent Transfer Act (DUFTA) based on the same alleged value-shifting transactions.
- The litigation proceeded against a backdrop of note indentures governed by New York law, including a “no-action” clause; the New York Court of Appeals had addressed certified questions about that clause in related proceedings.
- Athilon, the directors, and EBF moved for summary judgment, arguing that Athilon had returned to solvency and that Quadrant therefore lacked (or had lost) standing to pursue derivative fiduciary duty claims; defendants pointed to an audited balance sheet as proof.
- Defendants also argued that the indenture’s no-action clause barred some or all of Quadrant’s claims.

## Issues

1. Whether Delaware law requires a creditor-plaintiff to show the corporation remained insolvent continuously throughout the litigation to maintain derivative standing.
2. What insolvency showing is required for creditor derivative standing (including which insolvency test applies) and whether summary judgment was appropriate on that record.
3. Whether the indenture’s no-action clause, as interpreted under New York law, barred Quadrant from pursuing its claims in this action.

## Decision

- The Court of Chancery denied summary judgment to the extent defendants sought dismissal on the theory that Quadrant lost derivative standing when Athilon allegedly returned to solvency.
- The court held Delaware law does not impose a “continuous insolvency” requirement; once a creditor has derivative standing based on insolvency at filing, later solvency does not automatically eliminate standing.
- The court treated insolvency for standing purposes under Delaware’s traditional insolvency analysis (including the balance-sheet concept that liabilities exceed the fair value of assets), and held the audited balance sheet did not entitle defendants to judgment as a matter of law on the standing record presented.
- Applying the New York Court of Appeals’ guidance on the no-action clause, the court rejected the effort to use the clause as a categorical bar to Quadrant’s remaining fiduciary duty and DUFTA claims in this posture, and allowed the case to proceed.

## Legal Principles

- Under Delaware law, corporate fiduciary duties are owed to the corporation; creditors of an insolvent corporation generally may not sue directors directly for breach of fiduciary duty but may, in appropriate circumstances, assert those claims derivatively on the corporation’s behalf.
- Creditor derivative standing turns on insolvency at the time suit is filed; Delaware law does not require the corporation to remain insolvent throughout the litigation for the creditor to keep standing.
- Insolvency for standing purposes is assessed using Delaware’s established insolvency tests (including balance-sheet insolvency based on fair value), and valuation-based disputes commonly present fact questions that may not be resolved on summary judgment based only on audited financial statements.
- A no-action clause in a New York-law indenture does not automatically bar non-indentural fiduciary-duty and fraudulent-transfer claims in all circumstances; courts apply the clause according to its terms and the governing-law interpretation.

## Conclusion

Quadrant v. Vertin (115 A.3d 535) held that a creditor who properly obtained derivative standing by suing during the issuer’s insolvency does not automatically lose that standing if the issuer later becomes solvent, and the Court of Chancery denied summary judgment that sought dismissal on “continuous insolvency” and no-action-clause grounds, permitting the derivative fiduciary-duty and DUFTA claims to continue.


Quadrant Structured Products Company, Ltd. v. Vertin, 115 A.3d 535 (2015)