Reed Smith Client Alerts

A recent decision in the Delaware Court of Chancery confirms a creditor has standing to bring a claim under the Delaware Uniform Fraudulent Transfer Act when the creditor faces a “material risk of harm,” even if the contractual right to payment is contingent and/or unmatured.

In Richard F. Burkhart, et al. v. Genworth Financial, Inc. et al.,1 the Delaware Court of Chancery recently held a creditor who faces a “material risk of harm,” but whose claims have not yet matured, nonetheless has standing to sue for fraudulent transfer under the Delaware Uniform Fraudulent Transfer Act (DUFTA).2

DUFTA broadly defines a creditor as someone who has a “claim.”3 A “claim” is defined broadly to extend to persons who hold a “right to payment” even if that right is “contingent” or “unmatured.”4 The decision in Genworth Financial, Inc. opens the door for creditors to sue a debtor even where the debtor has not yet failed to honor any commitments or obligations to the creditor.5

The plaintiffs, a class of long-term care insurance policyholders and insurance agents, alleged that on the brink of its failure, Genworth Life Insurance Company’s (Genworth Life) owners and affiliates engaged in an intentional plan to syphon off Genworth Life’s assets and avoid a contractual obligation to pay the plaintiffs billions of dollars.6 The plaintiffs asked the Court of Chancery to restore to Genworth Life the value of the assets that were syphoned away.7 At the time the lawsuit was filed, Genworth Life had not failed to honor its commitments to the plaintiffs under the policies or missed any commission payments to the plaintiffs.8