Creditors of Insolvent Delaware Limited Liability Companies Lack Standing to Pursue Derivative Claims
Relying on the plain language of Delaware’s Limited Liability Company Act, the Delaware Supreme Court, in CML V, LLC v. John Bax, et al., recently ruled that creditors of insolvent Delaware limited liability companies lack standing to sue derivatively for their managers’ alleged breach of their fiduciary duties. According to Chief Justice Myron T. Steele, writing for the Court, 6 Del. C. § 18-1002 of Delaware’s Limited Liability Company Act is “unambiguous and limits derivative standing in LLCs exclusively to ‘member[s]’ or ‘assignee[s].’” In so holding, the Court distinguished insolvent LLCs from insolvent corporations, which are subject to derivative claims by creditors, noting that “the General Assembly is free to elect a statutory limitation on derivative standing for LLCs that is different than that for corporations, and thereby preclude creditors from attaining standing.”