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The General Corporation Law of Delaware (DGCL) provides a right of action against corporate directors who declare a dividend while the corporation is insolvent. Such conduct may also give rise to claims for fraudulent transfer or breach of fiduciary duty, but unlawful dividend claims have several advantages. When evaluating post-bankruptcy claims, trustees, debtors-in-possession and creditors should consider the propriety of bringing an unlawful dividend claim against the corporation’s directors and the shareholders who received an improper dividend.

The Statute