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Court Of Chancery Discusses Director Removal Statute

Posted In Directors

Shocking Technologies Inc. v. Michael, C.A. 7164-VCN (April 10, 2012)

A year or so ago, the DGCL was amended to permit the removal of a director by the Court of Chancery.  While the grounds to do are broadly stated (including "breach of the duty of loyalty"), the statute requires that the director first have been convicted of a felony or been found in a prior case to have breached his duty of loyalty.  There thus remains the question of whether director removal may be done without a prior action that establishes the grounds to do so.

This decision suggests that such a direct action for removal will be very hard to win, for the Court expressed serious concerns over whether it has that authority absent the statutory prerequisites. The question is still open to be squarely decided in another case.

Tags: Directors