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The Bankruptcy StrategistLJN NewslettersNewsSections

Is Anyone Safe?

By Deborah J. Piazza and Jennifer Rando

In these troubled times, attorneys, accountants and other professionals must be very careful in counseling clients that may be in the zone of insolvency. While an attorney may believe he is fulfilling his professional duty by assisting a corporate client in effectuating a financial transaction, if such transaction is ultimately found to be a fraudulent transfer or a breach of the fiduciary duties of one or more of the corporate client's principals, the attorney who counseled the client on such transaction could find him- or herself liable for aiding and abetting a deepening insolvency.

In recent years, we have seen an emergence of case law involving “deepening insolvency” claims. While the theory itself can be traced back to 1896 in Paterson v. Franklin, 176 Pa. 612 (Pa. 1896) where the Pennsylvania Supreme Court analyzed the issue in the context of a corporation which raised funds through use of a false statement and was soon thereafter rendered insolvent, it was not until 2001 that the current case law started to emerge.

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