Delaware Business Litigation Report

Court Of Chancery Determines When A Proxy Is Irrevocable And When It Has Jurisdiction To Decide Equitable Ownership In A Section 225 Case

Zohar II 2005-1 Limited v. FSAR Holdings Inc., C.A. No. 12946-VCS (Nov. 30, 2017)

This is an important decision for two reasons. First, it determines when a proxy is irrevocable under Delaware law. To be irrevocable under Section 212 of the DGCL, the proxy must be coupled with an interest. While the “interest” requirement is quite broad, the “coupled” requirement is more strict. The “interest” involved must be held by the person or entity receiving the proxy in order to be “coupled.” Thus, when the proxy is in favor of “X”, but the “interest” supporting the grant of the proxy is for “Y”, the proxy is not irrevocable. This prevents a proxy holder from voting in a way that may be inconsistent with the proxy’s purpose.

Second, the decision resolves the issue of when the Court of Chancery may decide ownership of stock in the context of a Section 225 case to determine which directors constitute the company’s board. If the persons claiming ownership are before the Court or represented by persons before the Court, and the ownership issue must be resolved to decide the right to consent or vote the stock, then the Court may decide ownership.

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