Bankruptcy is Not the Only Way: Alternative Insolvency Techniques in Delaware

With many entities choosing to incorporate in Delaware, the state has become a center of cross-border insolvency disputes. Many parties (especially those outside the U.S.) assume a Chapter 11 bankruptcy is the best way to achieve their goals, but as our Insolvency and Delaware teams explain, there are alternatives that could be quicker and cheaper.

November 23, 2022

Delaware’s role as a favored U.S. state for the incorporation of entities has also made it a center of high-stakes, cross-border insolvencies. Parties (especially those from outside the U.S.) tend to assume that a Chapter 11 bankruptcy is the quickest way to achieve their end goals – however, corporate bankruptcies may be long, drawn-out, unpredictable and costly.

Below is a short list of alternative insolvency techniques in Delaware that are potentially quicker and cheaper than bankruptcy.

Delaware State Court Receivership

What is it? When the debtor has engaged in fraud, this approach generally involves a third party being appointed by a court as a fiduciary to take control over a business or asset for a particular reason, such as operating or liquidating the business for the benefit of creditors (to name one example).

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Voluntary Dissolution & Winding Up

What is it? The process of closing down an entity and winding up its business affairs. This process typically involves (i) obtaining approval of the entity’s board or shareholders and (ii) filing the requisite papers with the Secretary of State.

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Assignment for the Benefit of Creditors (“ABC”)

What is it? A state law insolvency proceeding that assigns the debtor’s assets to an assignee (like a trustee or insolvency administrator in other jurisdictions). The assignee then liquidates the assets for the benefit of the creditors (in order of priority).

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In summary, there is no “one size fits all” insolvency technique in Delaware, and parties should choose the approach that fits their unique circumstances. 


About Kobre & Kim

Kobre & Kim is a conflict-free Am Law 200 law firm focused on disputes and investigations, often involving fraud and misconduct. 

Often working closely with lawyers in key non-U.S. markets around the world, our Delaware team: