The Palmaz Plan: Investors Can Have Their Direct D&O Claims But Not The D&O Insurance Proceeds #WinningWhileLosing
April 9, 2018
Authored by: Trinitee Green
In In re Palmaz Scientific Inc., the bankruptcy court for the Western District of Texas determined that a confirmed plan of reorganization would not stop a group of investors from pursuing direct (non-derivative) claims against directors and officers of the debtor companies because plan injunction language only covered claims against the debtors. 2018 WL 1036780, at *5 (Bankr. W.D. Tex. Feb. 21, 2018) (slip op. at 11). Unfortunately for the investor plaintiffs, this proved to be a success without victory because the court went on to hold that the plan precluded the investors from using the D&O insurance proceeds to satisfy their claims. Id. at *7 (slip op. at 14). This case is both a cautionary tale for claimants and a potential boon for post-confirmation trustees.
When (and why) do D&O Insurance Proceeds become the coveted prize?
When D&O claims are asserted against a distressed company and/or its directors