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Draft an internal memo with the answer up front
Gives the partner the answer and an honest confidence level in the first paragraph, then the analysis, the other side's best argument answered on the merits, and what you still need to firm it up.
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MEMORANDUM
To: Sarah Chen | From: J. Okafor | Re: Whether Acme Sub's officers owe direct duties to Sub's creditors | Date: April 27, 2026
Bottom Line. Officers of Acme Sub do not owe direct fiduciary duties to Sub's creditors, even in the zone of insolvency; creditors get derivative standing only once Sub is actually insolvent. Confidence: high on the direct-duty question, moderate on the practical exposure, because Sub's solvency rests on a $28M unaudited receivables figure that I have not seen tested.
Question Presented. Where a Delaware subsidiary holds $40M in secured debt against $2M cash and $28M in unaudited receivables, do its officers (two of whom also serve the parent) owe direct fiduciary duties to the subsidiary's creditors before actual insolvency?
Short Answer. No. *Gheewalla* holds that creditors of a Delaware corporation have no direct fiduciary claim against directors even when the corporation is insolvent, and no claim at all in the zone of insolvency. *N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla*, 930 A.2d 92, 101-03 (Del. 2007). Creditors of an insolvent corporation may sue derivatively. *Id.* at 101.
Analysis.
*The zone of insolvency creates no duty running to creditors.* Delaware rejected the zone-of-insolvency theory precisely because it would force officers to serve two masters. *Gheewalla*, 930 A.2d at 101.
*The same framework applies to officers, not only directors.* Delaware applies identical fiduciary standards to officers. *Gantler v. Stephens*, 965 A.2d 695, 708-09 (Del. 2009) [UNVERIFIED - confirm pin cite and subsequent history].
*The real exposure here is not fiduciary: it is the intercompany line.* Pulling a $6M line from a subsidiary that cannot pay secured debt is a fraudulent-transfer and deepening-insolvency problem before it is a fiduciary one. This is the part of the question you did not ask, and it is the part the board should hear Thursday.
Counterargument. A creditor would argue that the dual-hat officers acted for Parent rather than Sub, converting this from a duty-to-creditors case into a straightforward duty-of-loyalty claim brought derivatively once Sub tips insolvent. That argument is good, and it does not depend on *Gheewalla* at all, which is why the conclusion above is narrower than it sounds.
Open Questions (ranked). (1) Is Sub actually insolvent today on a balance-sheet and cash-flow test? A tested receivables number decides everything. (2) Are the intercompany advances documented as secured debt or equity? (3) Did the dual-hat officers recuse from the funding decision, and is that in minutes?
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Assumptions I made. The $28M receivables figure is booked but untested [verify - this is the fact that moves the memo]. No written intercompany subordination agreement exists [verify]. Delaware law governs internal affairs notwithstanding Texas operations [safe].
Where this is weakest. Two places. First, the "Confidence: high" rating is carrying more than the facts support. On your numbers ($2M cash and $28M of unaudited receivables against $40M of secured debt) Sub may already be balance-sheet insolvent, which moves derivative standing from a future problem to a present one. The direct-duty answer does not change; the practical exposure does. Second, "The same framework applies to officers, not only directors" rests on a single *Gantler* pin cite I have not confirmed. The conclusion survives without it, but that sentence would not survive your check.
What only you can decide. Give the board the clean answer (no duty runs to creditors), which is accurate and lets Thursday's vote proceed, but leaves the fraudulent-transfer exposure unspoken. Or pair it with the transfer analysis, which is the advice they actually need and will likely delay the vote and the funding. Also yours: whether this stays a privileged memo to counsel or goes into the board deck, where it may be read by directors who forward it.
What would make this materially better. Ranked by how far each moves the conclusion: (1) A tested receivables number or a solvency analysis: it decides whether the derivative-standing discussion is theoretical or live, and the figures you gave me do not obviously add up to a solvent subsidiary. (2) How the intercompany advances are papered: note, security agreement, or nothing. Whether the $6M is debt or equity drives the fraudulent-transfer question this memo raises and does not answer. (3) Board and officer minutes for the funding discussions, showing whether the two dual-hat officers recused. (4) *Quadrant Structured Prods. v. Vertin*, 115 A.3d 535 (Del. Ch. 2015), which you pulled and I have not read against these facts. It is the case that sets how much continued-operation risk a board may take once insolvency actually arrives.
Why this prompt is built the way it is
## Framework
1. **Answer first, confidence attached.** Paragraph one gives the conclusion and rates it high, moderate, or low, plus the one fact or gap that sets the rating.
2. **A question, not a topic.** One sentence containing the operative facts and the legal standard.
3. **Rule, then application.** State the governing rule with its source, then apply it to these facts. Authority from another jurisdiction is labeled persuasive only.
4. **Topic sentences that argue.** Every analytical paragraph opens with its takeaway. Labels are not headings.
5. **Steelman the counterargument.** Write the opposing position as its best advocate would, then answer it on the merits. A straw man in a memo is worse than no counterargument.
6. **Separate holding from implication.** Where the cases do not reach these facts, say the question is open and name the closest analog.
7. **Tie the answer to the decision.** A memo exists so someone can act. Say what to do, or what would have to be true to do the other thing.
8. **Open questions, not hedges.** Close with what you would need to know, ranked by how much each would move the conclusion.