Section 226 of the Delaware General Corporation Law permits the Court of Chancery to appoint a receiver or custodian for a corporation when its stockholders or directors are divided and the deadlock is injurious to the corporation. In a recent case, In re Shawe & Elting LLC, C.A. Nos. 9661, 9686, 9700 and 10449, Chancellor Andre G. Bouchard reinforced the court’s authority under Section 226, even when the corporation in question is not only solvent, but quite profitable.
Background
In a dormitory room at New York University in 1992, Philip Shawe and Elizabeth Elting founded a company to provide translation and language services to leading businesses. Although their friendship (and subsequent romantic relationship) was short-lived, the company they started, which ultimately became TransPerfect Global Inc., developed into one of the world’s leading providers of translation, litigation support, and website localization services, with annual revenues approaching $500 million. Since its founding, Shawe and Elting, who each control 50 percent of the company’s stock (Shawe only owns 49 percent, but his mother owns the other 1 percent) have served as co-chief executive officers of TransPerfect, and the sole members of its board of directors (a third board position was never filled). Shawe and Elting never entered into any written agreements governing the operation of the company or their relationship as stockholders, such as an operating agreement or stockholders agreement.
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