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Mark D. Harris and Margaret A. Dale Mark D. Harris and Margaret A. Dale

On May 2, U.S. Bankruptcy Judge Kevin J. Carey of the District of Delaware issued an opinion holding that a liquidation trustee who brought claims initially raised in an adversary proceeding by an unsecured creditors committee did not have standing to assert derivative claims on behalf of the debtor. See In re Citadel Watford City Disposal Partners L.P., No. 15-11323 (Bankr. D. Del. 2019). This ruling follows a number of recent similar decisions that have left creditors and their attorneys in a precarious position going forward. The ruling raises a number of questions, including whether it is appropriate to award a premium at the time credit is extended to compensate creditors for their potential lack of legal recourse should their investment sour and their interests diverge from the properly assigned parties; whether filing for bankruptcy will offer a debtor more flexibility on the assumption that creditors may have limited recourses after filing; and, as was determinative here, the strategic considerations and manner in which creditors seek to assert claims to protect their investment in the entity after the filing.

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