Liquidating corporations using derivatives
Rules and procedures regarding derivative suits are complex, so additional guidance in this area helps to provide clarity and direction.The Singapore ruling is especially important for shareholders seeking alternative legal remedies when a derivative suit is not available.Shortly thereafter, several of Cynergy’s lenders sued Paladini in state court for his use of their loan proceeds.The state court lawsuits were stayed at Paladini’s request because Paladini successfully argued that the lenders’ claims were derivative claims belonging to Cynergy’s estate.A liquidation trustee was appointed pursuant to the plan.The plan bestowed upon the liquidation trustee the power to assert all causes of action of the debtors, including those under chapter 5 of the Bankruptcy Code.Shareholder derivative actions occur when a shareholder brings a lawsuit on behalf of a company, usually against an insider, such as a director or officer.These lawsuits are important because they can help “balance the scales” when fiduciaries abuse their power.
Cynergy Holdings held the entirety of the membership interest in Cynergy Data, LLC, which provided payment process servicing to merchants.
Both redemptions were financed by several banks that entered into loan agreements with Cynergy.
Between 20, the companies were unable to meet their financial projections, and on September 1, 2009, the companies filed for chapter 11 in bankruptcy court in the District of Delaware.
Court of Appeal based its decision largely on interpretation of the language used in section 216A of the Companies Act.
The court agreed that derivative actions are an important mechanism designed to protect minority shareholders and provide a remedy when the company directors refuse to provide enforcement.
It acts somewhat as a buffer or filter for global investment into Asia, as well as a facilitator for Asian capital seeking to expand into international partnership.