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Court Of Chancery Explains The “Known Looter” Theory For Controllers

Posted In Fiduciary Duty

Ford v. VMware Inc., C.A. No.11714-VCL (May 2, 2017)

This is an interesting decision because it examines an intriguing legal theory for holding a controlling stockholder liable in a sale: the “known looter” theory.  Generally speaking, controllers can sell their stock to whoever they want.  After all, why be a controller unless you have the right to exercise control free from liability for doing so. But, as this decision points out, there are limits, such as selling to a known looter who in fact ends up looting the company.  Along the same lines, directors may be liable for failing to protect the company against a controller’s sale to a known looter.