Chancery Court Employs Context-Driven Analysis in Adopting Nuanced Interpretations of DGCL Provisions
In Stream TV, Vice Chancellor Laster addressed aspects of the DGCL which previously had received scant attention in the Delaware courts. Employing a context-driven approach to statutory interpretation, the Vice Chancellor arrived at nuanced explanations of two provisions of the DGCL whose language, read literally, might have produced different results:
- Under DGCL § 223(a)(1), the remaining directors (though less than a quorum) may fill vacancies on a board of directors, but may not take any other action (whether at a meeting or via unanimous written consent) that boards generally are authorized to take, including creating and then filling new board seats. Because there apparently were no Board vacancies when the Rajans acted, in their capacities as the sole directors, to appoint the Outside Directors, the actions that flowed from that appointment—establishment of the Resolution Committee, approval of the Omnibus Agreement, and transfer of the Company’s assets—were valid. The Rajans had no justifiable basis to challenge those arrangements.
- Under DGCL § 272, a board of directors (or duly established committee) does not need stockholder approval to pledge or mortgage corporate assets, even substantially all corporate assets, as security for the corporation’s debt. Moreover, consistent with a Delaware common law exception for failing or insolvent corporations, stockholder approval is not required under DGCL § 271 for a sale of those assets upon foreclosure. On this basis, the Vice Chancellor concluded that the arrangements contemplated by the Omnibus Agreement were, in effect, a private “foreclosure sale” not subject to the stockholder approval requirements of DGCL § 271. Company stockholder approval was not required to transfer the Company’s assets to SeeCubic under the Omnibus Agreement.
Robert S. Reder