Delaware Business Litigation Report

Chancery Denies Motion Seeking Appointment of a Receiver

Bighorn Ventures Nevada LLC v. Solis, C.A. No. 2022-1116-LWW (Del. Ch. Dec. 23, 2022)
The Court of Chancery has the discretion to appoint a custodian or receiver under Section 226(a)(2) of the DGCL when the board of directors is deadlocked, the business is suffering or is threatened with irreparable injury because of the deadlock, and the shareholders are unable to terminate the deadlock. Under Section 291, the Court has the discretion to appoint a receiver when the corporation is insolvent and special circumstances indicate some beneficial purpose will be served.

Here, the Court of Chancery denied a motion to appoint a receiver. In doing so, the Court found that the requirements of Section 226(a)(2) were unmet because there was reason to suspect that the deadlock was manufactured, and there was no evidence that the shareholders would be unable to break the deadlock – the shareholders only failed to elect a fifth, tie-breaking director because the requisite vote had been obtained at an improperly noticed meeting. The Court also held that a receiver should not be appointed under Section 291 because it was uncertain, based on the evidence presented, whether the corporation was insolvent.

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