The Court first held that Quadrant gained standing to bring a derivative claim by pleading that Athilon was insolvent. The Court relied on North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, in which the Delaware Supreme Court held that creditors of an insolvent corporation:

(930 A.2d 92 (Del. 2007).)

In Gheewalla, the Delaware Supreme Court determined that "[t]he standard of conduct for directors requires that they strive in good faith and on an informed basis to maximize the value of the corporation for the benefit of its residual claimants..." It further held that while the residual claimants of a solvent corporation are the stockholders, the beneficiaries of any initial increase in an insolvent corporation's value are the creditors. Although the stockholders remain residual claimants in an insolvent corporation, they can only benefit from increases in the corporation's value after the more senior claims of the corporation's creditors have been satisfied. In other words, the insolvency of the corporation makes the creditors the principal class injured by any fiduciary breaches that diminish the corporation's value. Therefore, the Delaware Supreme Court in Gheewalla held that "equitable considerations give creditors standing to pursue derivative claims against the directors of an insolvent corporation."

Upon its finding that creditors have standing to bring a derivative claim against an insolvent corporation, the Court then held that the allegations in Quadrant's complaint adequately pled that Athilon had been insolvent under the balance sheet test since before the EBF takeover. The Court noted that, while insolvency still "marks a shift in Delaware law," in light of Gheewalla "it is no longer accurate to say that the directors of an insolvent corporation owe fiduciary duties to creditors." Rather, "the shift refers primarily to standing: upon a corporation's insolvency, its creditors gain standing to bring derivative actions for breach of fiduciary duty, something they may not do if the corporation is solvent, even if it is in the zone of insolvency."

The Court then held that the contemporaneous ownership requirement, which applies to stockholder-plaintiffs, does not apply to creditors.

Under the contemporaneous ownership requirement of Section 327 of the Delaware General Corporation Law, a stockholder filing a derivative suit must hold shares in the corporation from the time of the breach of fiduciary duty lawsuit until its completion.

The Court rejected the argument that the contemporaneous ownership requirement should extend to creditors because of policy concerns and the plain language of Section 327, which by its terms applies only to stockholders and not to other corporate constituencies, like creditors, who have the ability to bring derivative claims under limited circumstances. However, the Court noted that its ruling was limited to the contemporaneous ownership requirement and declined to express an opinion on other prerequisites for standing under Delaware law, such as demand futility or demand refusal.

The Court held that Quadrant stated a claim on which relief can be granted on the issue of the Board's decision to continue paying interest on the Junior Notes.

The Court first concluded, as an initial matter, that entire fairness was the appropriate standard of review for evaluating this decision. The Court reasoned that EBF controlled Athilon because it owned 100% of its equity and stood on both sides of the transaction. Then the Court explained that:

Citing ample Delaware precedent, the Court noted that challenges to similar transfers from an insolvent subsidiary to its controller stated a derivative claim for breach of fiduciary duty. On these grounds, the Court held that Quadrant's complaint stated a derivative claim for breach of fiduciary duty to the extent that it challenged the failure to defer interest on the Junior Notes and that the Defendants have the burden of proving that the transaction was entirely fair.

Using the same analysis it applied in its holding regarding the Junior Notes, the Court then held that Quadrant stated a derivative claim for breach of duty by identifying Athilon's payment of excessive service and license fees to an affiliate of EBF. Quadrant alleged that this diverted value from Athilon to EBF. The Court agreed and held that because EBF stood on both sides of the transaction, entire fairness was the appropriate standard of review.

The Court then applied the business judgment rule in holding that Quadrant did not state a claim that the Defendants breached their fiduciary duties by amending the operating guidelines to permit Athilon to invest in riskier securities and make speculative investments.

The Court noted that, notwithstanding a company's insolvency, the directors continue to have the task of attempting, in the appropriate exercise of their business judgment, to maximize the economic value of the company. By doing so, the directors do not become guarantors of the success of their strategies; rather, they are protected by the business judgment rule, whether they pursue value maximizing strategies or an efficient liquidation. The Court explained that the business judgment rule applied and was not rebutted by the fact that:

Finally, the Court rejected Quadrant's alternative argument for rebutting the business judgment rule: that the complaint alleged facts supporting an "inference that rational persons acting in good faith as the directors of an insolvent firm would not proceed in this manner." The Court held that the complaint did not support an inference that no rational person would have taken on additional risk in the form of potentially higher yielding investments. It reasoned that, depending on the nature of the investments, a riskier strategy could have returned greater value for Athilon and all of its residual claimants, including its creditors.