Deepening Insolvency

Abstract

This article explores the theory of deepening insolvency, an increasingly controversial topic in bankruptcy-related litigation. An analysis of the case law shows the history and development of the topic through numerous court cases, particularly within the Third Circuit. These cases had concluded that deepening insolvency could be considered a theory of damages for a separate tort, an independent cause of action, both or neither. However, recent cases have attempted to limit the reach of deepening insolvency, which remains a question of state law. Thus, the future of deepening insolvency remains uncertain until the highest courts of each state weigh in with their views.

TOPICS: Private equity, financial crises and financial market history, credit risk management, portfolio construction