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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Showing 28 posts in Dissolution.

Court of Chancery Explains What Is A Proper Claim Reserve When Dissolving

Capone v. LDH Management Holdings LLC, C.A. No. 11687-VCG (April 25, 2018)

Under the LLC Act, as with the DGCL, an entity planning to dissolve and distribute its assets is required to set aside some reserve of assets to pay all known claims.  Failure to set aside sufficient assets may result in revocation of the entity’s certificate of cancellation, thereby reviving the entity, as happened in this case.  This decision explains when claims are “known” by the entity (i.e., the entity has actual knowledge of the claims) and how the entity may value those claims for purposes of retaining sufficient assets to potentially satisfy them.  Importantly, the reserve need not match all potential damages dollar-for-dollar.  The value of claims may be discounted based on their lack of merit, for example.

Court Of Chancery Explains When To Appoint Corporate Custodian

Posted In Dissolution

Kleinberg v. Aharon , C.A. 12719-VCL (February 13, 2017)

On the same day the Delaware Supreme Court affirmed the widely-reported TransPerfect decision, which ordered the sale of a successful company by custodian under Section 226 of the DGCL in order to break deadlock, the Court of Chancery issued this decision appointing a custodian of a Delaware corporation with limited powers to break a deadlock. The decision carefully explains the reason why a custodian should be appointed and why the custodian’s powers should be limited. In that sense, this is a “normal” custodian case not involving the very unusual circumstances the Court of Chancery had to deal with in TransPerfect.

Delaware Supreme Court Affirms The TransPerfect Decision

Posted In Dissolution

Shawe v. Elting, No. 423, 2016 (February 13, 2017)

The Supreme Court has affirmed the Court of Chancery decision that Section 226 of the DGCL permits the Court to appoint a custodian to sell a Delaware corporation when the board of directors and stockholders are deadlocked and the company is suffering as a result.

Court Of Chancery Dismisses Dissolution Case In Favor Of Ongoing California Litigation

Posted In Dissolution

Zebala v. Aminopterin LLC, C.A. No. 12186-VCS (September 28, 2016) (TRANSCRIPT) 

An issue of some debate is whether a non-Delaware court has the power to dissolve a Delaware entity.  Here, the Court of Chancery was asked to dismiss a later-filed dissolution action in Delaware based on a California forum selection clause in the parties’ LLC agreement, and in deference to a long-pending first-filed action in California where the court had already issued an injunction restricting the LLC’s assets that the Court of Chancery was being asked to wind up.  The Court thus had the opportunity to address the important power to dissolve question, but under the circumstances found it appropriate to defer to the California court relying on principles of comity and a McWane analysis to dismiss the dissolution action.  In other words, the Court of Chancery would not step on the California court’s toes under the circumstances, and the California court could decide for itself if it has the power to dissolve a Delaware entity should the parties present that issue there.

Court Of Chancery Grants Dissolution On Conditions

Posted In Dissolution

Abelmann v. Granum, C.A. 12041-VCMR (November 15, 2016)

This is an interesting decision in a small case. The Court granted the request to dissolve a Delaware entity in deadlock, but conditioned that dissolution on an agreement not to use the fact of dissolution in another proceeding between the parties to defeat a party’s standing. What other conditions might be imposed in other cases remains to be seen.

Court Of Chancery Orders Dissolution Despite LLC Agreement Bar

Meyer Natural Foods LLC v. Duff, C.A. 9703-VCN (June 4, 2015)

This decision may answer the question of whether an LLC Agreement’s bar of dissolution without a member’s consent trumps the statutory remedy of court-ordered dissolution when the entity’s purpose cannot be achieved any longer. It concludes that dissolution is proper under the facts presented where the objecting member really had no good reason to object.

Court Of Chancery Grants Specific Performance To Break Deadlock

Posted In Dissolution

Millien v. Popescu, C.A. 8670-VCN (January 31, 2014)

This is an interesting case because the Court grants specific performance of an somewhat vague contract and that breaks what would otherwise have been a stockholder deadlock.  It has a good outline of the law of specific performance.

Court Of Chancery Explains Stay Law On Appeals

Posted In Dissolution

In The Matter of the Rehabilitation Of Indemnity Insurance Corporation, C.A. 8601-VCL (January 16, 2014)

A party aggrieved by a trial court's decision may seek a stay while it appeals. To win a stay, it must satisfy the so-called "Kirpat" test, particularly its requirement of irreparable harm absent a stay.  This decision illustrates the analysis of the Kirpat factors.

Court Of Chancery Outlines Custodian Immunity

Posted In Dissolution

Jepsco Ltd. v. B.F. Rich Co. Inc,. C.A. 7343-VCP (February 14, 2013)

The liability of a custodian or receiver for a dissolving corporation is not clear.  Judicial immunity does protect him from many claims, but as this decision points out, not from all claims.  The discussion of what claims are or are not barred by immunity is particularly helpful for anyone assuming the role of a custodian or receiver.

Court Of Chancery Stays Section 273 Case

Posted In Dissolution

McElroy v Schornstein, C.A. 7233-CS (June 6, 2012)

It is often said that the Court of Chancery will not stay or dismiss an action filed under one of the statutory provisions for summary adjudication of a claim, such as to decide a proxy contest,  because there is prior litigation filed elsewhere.  That is generally true, but not always and this decision involves 1 of the rare exceptions.  Here the plaintiff sought a decree of dissolution by his complaint filed several months after a similar claim was filed by the other side in New Jersey. Noting that any decision by it would impact a preliminary ruling by the New Jersey court, the Court of Chancery dismissed its case to avoid such a conflict.

Court Of Chancery Appoints Receiver To Resolve Strategic Issues

Posted In Dissolution

Badii v. Metropolitan Hospice Inc., C.A. 6190-VCP (March 12,  2012)

In this case the Court appointed a receiver for an insolvent corporation under Section 291 of the DGCL.  The Court reasoned that the appointment was needed to break a deadlock over whether to implement a proposed tax strategy when there was little time left to deal with the IRS.  This illustrates when a receiver may be appointed to make business decisions.

Court Of Chancery May Appoint A Receiver To Collect Insurance

Posted In Dissolution

In The Matter of Krafft-Murphy Company Inc., C.A. 6049-VCP (November 9, 2011)

This decision upholds the power of the Court of Chancery to appoint a receiver for a dissolved Delaware corporation to collect on the corporation's insurance polices covering asbestos claims. This may be done even more than 10 years after formal dissolution and provides a way to pursue insurance coverage despite the general law that prohibits direct claims against an insurer.

See also the Supreme Court's reversal of part of the Court's ruling at Anderson v. krafft-Murphy Company, Inc. Del Sup. C.A. 85, 2013 ( November 26, 2013).

Court Of Chancery Upholds LLP Dissolution Procedures

Posted In Dissolution

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.

Court of Chancery Explains When Receiver Appointed

Posted In Dissolution

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.

Court of Chancery Explains Limitations for Receiver Litigation

Posted In Dissolution

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.