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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Chancery Orders Dissolution of Pharmaceutical LLC
Because LLCs are “creatures of contract” and the policy of the Delaware Limited Liability Company Act is to give maximum effect to the freedom of contract, parties can adopt contractual arrangements that, in the end, lead to deadlock. So, Section 18-802 of the LLC Act empowers the Court of Chancery to break a deadlock through a judicial dissolution whenever it is not “reasonably practicable to carry on the business in conformity with” the LLC agreement.
Here, the Court of Chancery ordered the judicial dissolution of an LLC in the pharmaceutical industry, Inspiron Delivery Sciences, finding it was no longer reasonably practicable to carry on the company’s business in conformity with its LLC agreement under the circumstances. The Court found that the two founding members were deadlocked on numerous important issues, such as the company’s strategic vision, and that the LLC agreement did not provide any alternate mechanism to resolve the deadlock. By giving the LLC members veto rights and consent rights over decisions, the parties created the possibility that they would become deadlocked; they also chose not to draft a means to resolve a potential deadlock, such as a buy-sell provision. As the Court explained, in such instances, it is not the Court’s role to redraft the LLC agreement for “sophisticated and well-represented parties.”