Proposed Amendments to Section 204 of the Delaware General Corporation Law Resolve Uncertainty Created by the Reasoning in Nguyen v. View, Inc.
In 2017, the Delaware Court of Chancery in Nguyen v. View, Inc., 2017 WL 2439074 (Del. Ch. June 6, 2017), held in a proceeding brought pursuant to Section 205 (“Section 205”) of the General Corporation Law of the State of Delaware (the “DGCL”) that the consummation of a financing by View, Inc. (“View”) that required the approval of, but was deliberately rejected by, the founder and then-majority common stockholder, was not a “defective corporate act” subject to ratification under Section 204 of the DGCL (“Section 204”). In so holding, the Court interpreted the definition of “defective corporate act” as requiring the court to take into account the corporation’s “operative reality” at the time the act was taken in order to determine whether the corporation would have had the power to take such action at that time.Because View knew that the approval of the financing required the consent of the founder, and because the founder had intentionally revoked his consent, the Court concluded View’s operative reality was that it did not havethe corporate power to effect the financing without the founder’s consent, and thus that the financing was not a “defective corporate act” for which ratification pursuant to Section 204 was available.