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Deepening Insolvency Trend Expands to Delaware

By Luis Salazar

Spurred on by the current economic downturn, the use and acceptance of deepening insolvency as a cause of action in the bankruptcy arena continues to become more established and recognized. The Third Circuit already aided this development by recognizing deepening insolvency as a cause of action under Pennsylvania law in Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340 (3d Cir. 2001). Now, the Delaware Bankruptcy Court in In re Exide Technologies, Inc., 2003 WL 22079513 (August 21, 2003) has recognized deepening insolvency — this time as a valid cause of action under Delaware law – in a lawsuit by an unsecured creditors committee against lenders of a bankrupt company.

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