Posts in Dissolution

Court Of Chancery Upholds LLP Dissolution Procedures

In re Cencom Cable Income Partners L.P. Litigation, C.A. 14634-VCN (June 3, 2011, revised June 6, 2011)

In this case the limited partnership agreement had a detailed method for dissolving the entity and paying the proceeds to the limited partners, including how to set the sale price if its assets were sold to a related party.  The General Partner approved such a sale and followed the prescribed method.  When the plaintiff argued the result was less than optimal, the Court held that was too bad when the partnership agreement was followed.  In short, the "contract" among the partners was again enforced.

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Court of Chancery Explains When Receiver Appointed

In re Texas Eastern Overseas, Inc., C.A. 4326-VCN (December 23, 2009)

When it is "reasonably likely" that a corporation has some assets, the Court will appoint a receiver even if the corporation has been dissolved for 15 years.

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Court of Chancery Explains Limitations for Receiver Litigation

In the Matter of Texas Eastern Overseas Inc., C.A. 4326-VCN (November 30, 2009)

This decision answers the question of whether it is possible to have a receiver appointed for a dissolved Delaware corporation more than 3 years after it is dissolved. Section 278 of the Delaware General Corporation Law provides for a 3 year statute of limitations for litigation against a dissolved Delaware corporation. However, when the petition to appoint a receiver seeks to get at assets still held by the dissolved corporation (in this case an insurance policy), the Court ruled that the petition may proceed. The theory is that the persons protected by Section 278, such as its stockholders, will not be affected by the appointment of a receiver who is only seeking assets still held by the entity and that they would not receive anyway.

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Court of Chancery Denies Request for a Receiver

Banet v. Fonds de Regulation et de Controle Cafe Cacao, C.A. 3742-CC (Del. Ch. Feb. 18, 2009)

 

This is an excellent summary of the law governing when the Court of Chancery will appoint a receiver for either an insolvent or a solvent corporation. For example, only when there is a grave risk of serious harm to the entity will the Court appoint a receiver for a solvent Delaware corporation.

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Court of Chancery Upholds LLC Dissolution Provision

Spellman v. Katz, C.A. 1838-VCN (Del. Ch. Feb. 6, 2009)

 

In drafting an LLC operating agreement, the key point to remember is that you get what you agreed to even if you later come to regret it. Here, the operating agreement included a provision that the LLC would be dissolved when certain events occurred. When those events occurred, one of the members claimed that he never intended the LLC would then be dissolved. Too bad said the Court and ordered dissolution and winding up.

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Court of Chancery Dissolves a Deadlocked LLC

Fisk Ventures, LLC v. Segal, C.A. 3017-CC (Del. Ch. Jan. 13, 2009)

 

It has long been established that a limited partnership may be dissolved when a deadlock makes it impossible to carry on the partnership business. Here the Court of Chancery applied that same law to an LLC as the statute also provides for a judicial dissolution when it is "not reasonably practical to carry on the business" for which the entity was created.

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Court of Chancery Affirms Limitations Period for Dissolved Entity

In the Matter of Dow Chemical International Inc. of Delaware, C.A. 3972-CC (Del. Ch. Oct. 14, 2008)

This decision has a good outline of when the right to sue a Delaware corporation expires after it is dissolved. The basic rule is that after three years no suit may be filed. Exceptions may exist for entities that still have undistributed assets and when a receiver is appointed for those entities.

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Court of Chancery Denies Application for Receiver

Weir v. JMACK Inc., C.A. 3263-CC (Del. Ch. Sept. 23, 2008)

This decision repeats the settled Delaware law that the Court of Chancery will not appoint a receiver for a solvent Delaware corporation absent extraordinary circumstances. Of course, having a court tell the world that your tax evasion is not "extraordinary" justification for a receiver may have been punishment enough.

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Court of Chancery Refuses Dissolution of LLC

In re Seneca Investment LLC, C.A. 3624-CC (Del. Ch. Sept. 23, 2008)

This decision applies the corporate law rule that the Court of Chancery will not dissolve a solvent entity except for extraordinary reasons. Merely acting as a holding company without an active business is not even close to good enough to warrant dissolution.

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Court of Chancery Upholds Statute of Repose for Dissolved Corporations

The Territory Of The Virgin Islands v. Goldman, Sachs & Co., C.A. No. 2505-VCS (December 20, 2007).

This decision upholds the law that Section 278 of the Delaware General Corporation Law ("DGCL") acts as a statute of repose to bar the filing of all litigation against a Delaware corporation after 3 years from the date of its dissolution.

As the court also notes, that means that a suit against stockholders under Section 325 of the DGCL for having received an improper liquidating distribution are also precluded under those circumstances.

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Court of Chancery Stays Delaware Action In Favor of Canadian Litigation

Xpress Management Inc. v. Hot Wings International Inc., C.A. No. 2856-VCL (May 30, 2007).

Under very unusual circumstances, this decision entered a stay of a Delaware proceeding to dissolve a Delaware corporation because of prior filed litigation in Canada. While the law governing stays of Delaware litigation is very well developed, it is unusual to stay a proceeding for dissolution of a Delaware corporation. That is a particularly Delaware-based remedy that its courts are reluctant to forgo when the statutory prerequisites are met.

Here, however, the facts supporting the issuance of a stay were particularly strong. These included extensive and abusive litigation between the parties in Canada, the jurisdiction of the Canadian courts over the key assets in dispute and the existence of orders by the Canadian courts that dealt with the merits of the underlying dispute between the parties that had little to do with Delaware law.

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Court of Chancery Appoints Receiver To Remedy Breach of Duty

Kevin McGovern, et. al. v. General Holding, Inc., et. al., C.A. No. 1296-N (Del. Ch. June 2, 2006). In this action to recover for the diversion of partnership property, the Court of Chancery fashioned a unique remedy by ordering that the partnership be sold by a receiver so as to realize the special value of its technology. More › Share

Court of Chancery Finds Majority Stakeholder, Chief Executive Officer and General Partner of Limited Partnership Breached His Fiduciary and Contractual Duties to Limited Partnership

McGovern v. General Holding, Inc., C.A. No. 1296-N, 2006 WL 1468850 (Del. Ch. May 18, 2006). Plaintiffs brought action individually and on behalf of limited partnership against 90% owner of limited partnership for, among other things, breach of fiduciary duty and breach of limited partnership agreement. More › Share

Court of Chancery Permits Third Complaint Amendment In Nigerian Judgment-Enforcement Action

Harry A. Akande v. Transamerica Airlines, Inc., et al., C.A. No. 1039-N, 2006 WL 587846 (Del. Ch. Feb. 28, 2006). This is a motion to amend the Complaint under Court of Chancery Rules 15(a) and 15(aaa) for the third time before the Court of Chancery, involving a foreign judgment enforcement action. Plaintiff sought to withdraw his petition for receivership and add factual predicates to various claims he made. In an earlier hearing, the Court of Chancery permitted plaintiff's motion for discovery and converted the defendants' motion for dismissal upon plaintiff's motion to one of summary judgment. More › Share

Court of Chancery Dissolves LLC that is Deadlocked and was Arguably Formed as Part of Scheme to Deceive Investors

In re: Silver Leaf, LLC, C.A. No. 20611, 2005 WL 2045691 (Del. Ch. Aug. 18, 2005). Plaintiff and the defendants formed Silver Leaf, LLC ("Silver Leaf") to market a new vending machine that was to produce French fries. In connection with the formation of the entity, the parties signed a stock purchase agreement and a sales and marketing agreement with Tasty Fries, which owned the manufacturing rights to the vending machines. After the relationship between the parties deteriorated, Tasty Fries terminated the sales and marketing agreement over a dispute related to the stock purchase agreement. More › Share