## Facts

- Trenwick Group Inc., an insurance holding company, pursued an acquisition-driven expansion strategy in the late 1990s and reorganized its business across multiple jurisdictions.
- Trenwick America Corporation, a key U.S. subsidiary, assumed substantial obligations, including guarantees tied to a large credit facility connected to the group’s strategy.
- The company later suffered significant insurance and reinsurance losses; Trenwick Group and Trenwick America entered bankruptcy in 2003.
- A litigation trust was created under Trenwick America’s bankruptcy plan and received assignment of Trenwick America’s causes of action.
- The trust sued former directors and officers and multiple professional advisors (including auditors), alleging that the acquisition and financing strategy wrongfully prolonged corporate life, increased insolvency-related harm, and misled stakeholders.
- The complaint asserted breach of fiduciary duty, fraud/misrepresentation, professional malpractice, aiding-and-abetting liability, and “deepening insolvency” (as both an independent claim and a damages theory), and it challenged certain earlier transactions.

## Issues

1. Whether Delaware recognizes “deepening insolvency” as an independent cause of action.
2. Whether corporate insolvency creates fiduciary duties owed directly to creditors, or instead only affects who has standing to sue for breaches owed to the corporation.
3. Whether a bankruptcy litigation trust, standing in the debtor’s shoes, may pursue claims belonging directly to creditors rather than to the corporation.
4. Whether the complaint pleaded non-exculpated fiduciary-duty claims sufficient to overcome the business judgment rule and any DGCL § 102(b)(7) exculpation.
5. Whether the complaint pleaded fraud with sufficient particularity and adequately stated malpractice or aiding-and-abetting claims against professional advisors.
6. Whether certain transaction-based challenges were time-barred.

## Decision

- The Court of Chancery dismissed the complaint in its entirety under Rule 12(b)(6).
- The court held Delaware does not recognize “deepening insolvency” as a standalone tort; it may, at most, describe damages arising from a proven traditional wrong.
- The court held insolvency does not create new fiduciary duties owed directly to creditors; directors’ duties remain owed to the corporate enterprise, with insolvency affecting only standing to assert derivative claims.
- The court ruled the litigation trust could not assert direct creditor claims or recharacterize creditor-specific injuries as corporate claims.
- The court found the pleadings insufficient to state non-exculpated fiduciary-duty claims or fraud, and insufficient to support malpractice or aiding-and-abetting liability against professional advisors.
- The court held certain claims challenging earlier acquisitions were untimely and not saved by tolling as pleaded.

## Legal Principles

- Delaware corporate law does not recognize “deepening insolvency” as an independent cause of action; it is, at most, a potential measure of damages tied to an established tort or fiduciary breach.
- Insolvency does not shift directors’ fiduciary duties to creditors; it permits creditors to pursue derivative claims for harm to the corporation, not direct fiduciary-duty claims.
- A litigation trust or similar successor to the debtor corporation generally may assert only claims belonging to the corporation, not claims belonging uniquely to creditors.
- Allegations that directors pursued a risky or unsuccessful strategy, without well-pleaded facts showing disloyalty, bad faith, or other non-exculpated misconduct, do not overcome the business judgment rule or director exculpation for duty-of-care violations.
- Fraud must be pleaded with particularity; generalized allegations and hindsight critiques are insufficient.
- Aiding-and-abetting fiduciary-breach claims require well-pleaded facts showing a primary breach and knowing participation; conclusory assertions that advisors “should have known” are inadequate.
- Claims filed outside the applicable limitations period are barred absent plausible allegations supporting tolling doctrines.

## Conclusion

The court rejected attempts to impose liability for an unsuccessful growth strategy through a standalone “deepening insolvency” tort or creditor-direct fiduciary-duty theories, holding that insolvency affects standing rather than the content of directors’ duties and dismissing the trust’s fiduciary, fraud, and professional-advisor claims for lack of adequate pleading and, in part, untimeliness.


Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006)