In the recent opinion of Stream TV Networks, Inc. v. SeeCubic, Inc., C.A. No. 2020-0310-JTL (Del. Ch. Dec. 8, 2020) (Laster, V.C.), Vice Chancellor Laster invoked over a century-long development of Delaware corporate jurisprudence to support his ruling that the assets of a 3D television technology company can be transferred to secured creditors, notwithstanding the language of Section 271 of the Delaware General Corporation Law (“DGCL”).
The Court of Chancery granted Defendant SeeCubic Inc.’s (“SeeCubic”) motion for a preliminary injunction preventing plaintiff from interfering with with the agreement. The Court denied Plaintiff Stream TV Networks, Inc.’s (“Stream”) competing motion for a preliminary injunction to prevent enforcement of the agreement, finding that Stream’s theories were without merit.
Under the agreement, Stream “agreed to transfer all of its assets to SeeCubic, a newly formed entity controlled by its secured creditors[.]” Slip op. at 1. The creditors had the right to foreclose on Stream’s assets, according to the opinion.
Vice Chancellor Laster cited both to a 19th-century treatise, and a 1915 Court of Chancer decision by Chancellor Charles M. Curtis, Butler v. New Keystone Copper Co., 93 A. 380, 382 (Del. Ch. 1915), to support his decision barring Stream and its officers from interfering with an agreement to turn over its assets to SeeCubic.
Stream argued that the agreement was “invalid because it constituted a sale of all of Stream’s assets, which required stockholder approval under Section 271 of the Delaware General Corporation Law.” Slip op. at 2-3. Vice Chancellor Laster disagreed that the contemplated transfer of Stream’s assets to its secured creditors constituted a sale within the scope of Section 271.
The opinion walked through the history of Section 271, noting that it began as an exception to the common law rule requiring stockholder approval for the transfer of substantially all of a company’s assets when the company was faced with insolvency.
In finding that Section 271 did not apply to the transfer of Stream’s assets, the Court also conducted an analysis of the terms “sale” and “exchange,” finding that the plain meaning of these terms did not apply to the transfer of assets under the omnibus agreement at issue. Per the Court: “principles of statutory interpretation call for examining the legislative history of the statute and its position in the broader context of the DGCL. These sources demonstrate that Section 271 does not apply to a transaction like the one contemplated by the Omnibus Agreement, in which an insolvent and failing firm transfers its assets to its secured creditors in lieu of a formal foreclosure proceeding.” Slip op. at 41.
Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.