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Leveraged Buyouts Made Less Safe from Fraud Actions in Delaware

By Corinne Ball

In the recent decision in Mervyn's, LLC v. Lubert-Adler Group IV, LLC (In re Mervyn's Holdings LLC), No. 08-11586, Adv. Proc. No. 08-51402, 2010 Bankr. LEXIS 670 (Bankr. D. Del. Mar. 17, 2010), a Delaware bankruptcy court allowed a debtor to proceed with a suit against its former parent, alleging a fraudulent conveyance (both actual and constructive) and breach of fiduciary duty to the debtor and its creditors. The suit stemmed from a fully leveraged buyout whereby the debtor was sold. The case is significant for its treatment of the LBO vis-'-vis the safe harbor protections of the Bankruptcy Code.

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