Insolvency and Fiduciary Duties of Directors Selling a Business – In Re Nine West

In late 2020, the business bar was abuzz about the holding in In re Nine West LBO Securities Litigation, in which a federal district court, in a motion to dismiss, held that the bankruptcy trustee properly plead a breach of fiduciary duty claim by the unsecured creditors of the successor buyer against the board of directors of the selling company. This case permitted creditors of an LBO purchaser to sustain a claim against a board of a predecessor selling company – a company in which those creditors never directly had held equity.This case has been perceived by the business bar as a groundbreaker in fiduciary duty case law, yet the holding was not surprising to the bankruptcy bar. The evaluation by the seller’s board of the sales price to the buyer was brought under state law claims in post-bankruptcy confirmation federal district court proceedings almost six years after the original date of sale and after the settlement of the usual shareholders derivative suit against the very same directors challenging the fairness of the price. While the business bar is accustomed to considering the duties to the equity holders of the seller, the case will cause heightened concern for liabilities for…