When is a holder of preferred shares of a Delaware corporation entitled to have the corporation redeem its investment? InSV Inv. Partners LLC v. ThoughtWorks Inc. , Nov. 15, the Delaware Supreme Court reaffirmed that question is answered by reference to the terms of the certificate of incorporation that establish the rights of the preferred stockholder and to the proof at trial.
At issue was a clause in the company’s charter that required the company to redeem the entire amount of outstanding preferred stock "out of any funds legally available therefore and which have not been designated by the board of directors as necessary to fund the working capital requirements" of the company. The Court of Chancery had concluded that "funds legally available" meant funds that could be disbursed for redemption without violating the Delaware General Corporation Law, specifically Section 160 of the DGCL, or common law. The Court of Chancery had rejected the plaintiff’s definition of "legally available funds" as meaning the same as "surplus."
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