Litigation Trustee and Committee Claims Against Insiders, Auditors, and Other Third Parties in Asset Sale Cases

Description

Trustees, creditors' committees and post-confirmation trusts are aggressively pursuing claims against third parties such as officers and directors, as well as accountants, auditors, attorneys, lenders, and advisers for their role in the debtor's insolvency. Allegations include breach of fiduciary duty, fraud, aiding and abetting, and malpractice.

Post-confirmation, issues of the bankruptcy court’s continuing subject matter jurisdiction may arise, and the answer may vary circuit to circuit.

The in pari delicto defense can prevent the trustee, committee or trust, each of which stands in the shoes of the debtor, from pursuing damages resulting from actions by the debtor's officers and directors. This defense is evolving, as are the exceptions to the defense.

D&O policies, where the available proceeds may be reduced by the defense costs of targeted individuals, must be managed by the court to preserve a source of recovery; however, whether policy proceeds are property of the estate or may be so managed varies court to court and circuit to circuit. Another impediment to recovery is the insured vs. insured exclusion in D&O insurance policies as insurance recovery may be critical to obtaining any recovery. Cases are split on whether the exclusion applies across the range of estate representatives and plaintiffs. Listen as our authoritative panel of bankruptcy attorneys discusses recent trends in trustee, committee and post-confirmation trust litigation against insiders and third-party professionals. The panel will also review limitations on recovery posed by the in pari delicto doctrine,claim preservation and standing issues, the insured vs. insured exclusion to D&O policies, and recent cases, and also discuss the management of policy proceeds as a source of recovery.