The 2013 amendments to the Delaware General Corporation Law (DGCL) added new Sections 204 and 205, which set forth self-help procedures for a corporation to ratify, and vest the Court of Chancery with jurisdiction to validate, defective corporate acts, including the invalid issuance of stock, that might otherwise be void or voidable due to noncompliance with the DGCL or a corporation’s organizational documents. These new sections were enacted in response and to overturn Delaware case law that held unauthorized corporate acts were void or voidable despite equitable considerations. (See, e.g., STAAR Surgical v. Waggoner, 588 A.2d 1130 (Del. 1991).) New Section 205 confers jurisdiction on the Court of Chancery to determine the validity of any corporate act or transaction, any stock, or right or option to acquire stock. Sections 204 and 205 became effective April 1.
The Court of Chancery recently had the opportunity to address whether plenary stockholder actions, challenging the validity of stock issuances under a corporation’s organizational documents, should be stayed pending the disposition of a subsequent application brought by the corporation, seeking validation of the stock issuances by the court under new Section 205. In In re Cheniere Energy Stockholders Litigation, Consol. C.A. No. 9710-VCL, C.A. No. 9766-VCL (Del. Ch. Jun. 25, 2014) (Laster, V.C.) (Transcript Opinion), the Court of Chancery stayed plenary stockholder actions for breach of fiduciary duties against Cheniere Energy Inc. and its directors and officers, challenging the validity of stock allegedly issued in violation of Cheniere’s bylaws, in deference to a subsequent application filed by Cheniere seeking validation of the challenged stock issuances pursuant to Section 205 of the DGCL.
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