The In Pari Delicto Defense to Bankruptcy and Other Claims Against Directors, Officers, and Third Parties

Description

Bankruptcy trustees, receivers, creditors, assignees for the benefit of creditors, investors, and other plaintiffs in asset recovery actions often aggressively pursue claims against the management as well as outside professionals and lenders of distressed and insolvent entities, including accountants, auditors, attorneys, banks, and advisers.

A significant defense for professionals and banks in such cases is the in pari delicto doctrine. When the plaintiff stands in the shoes of the debtor entity--as do bankruptcy trustees, receivers, assignees for the benefit of creditors, and some others often do--and attempts to recover for the debtor's conduct in which the debtor's officers, directors, or employees were complicit, the defendants often seek to bar recovery arguing that the plaintiff is "of equal fault" with defendants.

This defense has been rapidly evolving in the past few years, and its scope varies by jurisdiction. The Madoff and MF Global litigation, among many other high-profile cases, featured this defense prominently. Additionally, insight has emerged from the U.S. Circuit Courts of Appeal and the defense is expected to play a prominent role in the cryptocurrency bankruptcies.

Listen as our authoritative panel of trial lawyers discusses recent trends in asset recovery litigation against officers, directors, and outside professionals of distressed companies, as well as banks, and the evolving scope and application of the in pari delicto defense as a potential shield to recovery by trustees, receivers, creditors, assignees for the benefit of creditors and investors.