The Court of Chancery recently handed down a ruling providing guidance to practitioners submitting petitions in business dissolution proceedings. A copy of the Court’s decision can be viewed here: In Global Safety Labs, Inc..
Section 280 of the DGCL establishes an optional court-supervised process that a company can follow to wind up its affairs, including the requirement to provide security for claims. The Court noted that proceedings under section 280 are often ex parte and petitions usually contain stripped down conclusive assertions. In his decision, Vice-Chancellor Laster concluded that “[i]In these types of proceedings, the court needs more information, including about the entity, its history, the path that led to the relief sought, and the parties that might be affected by the relief. A template for providing this information to the Court can be found in the Day One Statement filed in support of a Chapter 11 bankruptcy petition.
Global Safety Labs filed a Section 280 petition in the Chancery Court seeking a determination that it was not obligated to provide security for claims based on the existence of a secured creditor with a duly perfected surety and an indisputable priority to claim all the rights of the company being dissolved. assets. In such situations, “the establishment of a guarantee for junior claims becomes a trivial matter [because] even if these claims result in judgment for astronomical amounts, the junior plaintiffs will have no right to collect. However, the Court concluded that it did not have sufficient information to make such a determination and ordered the company to supplement the filing with information typically found in a first-day bankruptcy filing, including:
- The organizational and capital structure of the Company.
- Both the debt side and the equity side of the Company’s balance sheet.
- Events leading to the dissolution of the Company as well as any alternative to dissolution that the Company has explored and why the option of dissolution was chosen.
- What the Society hopes to achieve and why.
The Court concluded by stating that lawyers are in the best position to determine what information the Court needs. When preparing a petition for dissolution, attorneys should consider “what information they would like to know before providing advice to an entity about its prospects of seeking relief under Section 280” or “what kind of information they would share with a colleague if they asked for feedback or advice.