Court of Chancery Invalidates Election of Directors Where Board Improperly Set the Record Date
This case illustrates that the court generally will not use Section 205 to validate a deliberate, intentional violation of a statute to set the record date for a meeting, at least when a short period of time passes between the defective action and the court proceeding.
September 11, 2024 at 01:15 PM
4 minute read
ContributorsSections 205 and 225 of the Delaware General Corporation Law facilitate prompt determinations of the validity of corporate actions. The former permits the Delaware Court of Chancery to validate defective corporate acts under certain circumstances, thereby upholding actions taken in reliance upon the validity of those acts. Section 225 provides a prompt determination of who rightfully serve as the managers of a Delaware corporation, thereby allowing the company and third parties to act with confidence that corporate officers and directors have the authority to act. In TS Falcon I v. Golden Mountain Financial Holdings, C.A. No. 2023-1247-LWW (Del. Ch. Aug. 27, 2024), the Court of Chancery declined under Section 205 to validate board action to set a record date for a stockholders' meeting to elect directors that did not comply with Section 213(a) of the DGCL. As a result, the court in a Section 225 action invalidated the election of directors at that meeting and reinstated the prior board. This case illustrates that the court generally will not use Section 205 to validate a deliberate, intentional violation of a statute to set the record date for a meeting, at least when a short period of time passes between the defective action and the court proceeding.
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