We have previously discussed the standard for the appointment of a custodian to a deadlocked corporation under Section 226 of the Delaware General Corporation Law (“DGCL”). What standard is applied by the Court to consider whether to appoint a custodian on an interim basis to a corporation before a trial on the merits?
The recent case of In re TransPerfect Global, Inc., C.A.No. 9700-CB (Del.Ch. Dec. 3, 2014) addresses this question. In TransPerfect, the Court of Chancery denied a request for the interim appointment of a custodian under Section 226 of the DGCL. The decision was granted despite the fact that the corporation was deadlocked as a result of dissension among a board consisting of two directors.
In the opinion, the Court found that the moving party must demonstrate that the “appointment [of an interim custodian] is urgently needed for the immediate protection of the company.” Slip op. at 2 (citing Moore v. C.H.M. Enters., Inc., 1983 WL 102620, at *2 (Del. Ch. Nov. 9, 1983)). Absent such a showing, the Court will be disinclined to appoint an interim custodian prior to a trial on the merits, even in the face of corporate deadlock.
If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.