The Failure of the ‘Failing Business’ Exception Under Delaware Law

June 22, 2022

Publication| Corporate Transactions| Corporate Governance| Mergers & Acquisitions| Special Committees & Investigations| Corporate & Chancery Litigation

In Stream TV Networks v. SeeCubic, the Delaware Supreme Court vacated a permanent injunction imposed by the Delaware Court of Chancery that prohibited Stream TV Networks, Inc. and the Rajan brothers, who collectively held a majority of the company’s stock, from blocking a negotiated transfer of all of Stream’s assets to satisfy its secured creditors. In so doing, the Supreme Court held that a provision of Stream’s certificate of incorporation requiring stockholder approval for certain asset transfers (the Stream charter provision) unambiguously applied to the transaction. While not necessary to its holding in light of its interpretation of the Stream charter provision, the Supreme Court also found that the common law “failing business” exception to the stockholder approval requirement for a sale of substantially all assets, if it ever existed in Delaware, did not survive the adoption of Section 271 of the Delaware General Corporation Law (the DGCL).

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