Plumbing the Depths of Corporate Litigation: Reforming the Deepening Insolvency Theory

“Deepening insolvency” is a developing tort theory. Typically arising in bankruptcy proceedings, deepening insolvency claims are usually made by shareholders or creditors of the corporation against corporate directors, outside auditors, or lenders. This Note analyzes the widely differing approaches courts have taken to deepening insolvency. Some courts refuse to recognize deepening insolvency as a cause of action at all. Others admit deepening insolvency as a distinct tort, requiring a showing of either fraud or negligence on the part of the defendant. Finally, some courts recognize the theory as a measure of damages for existing tort claims. Ultimately, this Note recommends that the proper place for deepening insolvency claims in modern litigation is as a bar to the in pari delicto defense for defendants who have engaged in fraud.

The full text of this Note is available to download as a PDF.