On July 6, 2018, Vice Chancellor Travis Laster delivered a verdict for the plaintiffs in Basho Technologies v. Georgetown Basho Investors, No. 111802 (VCL) (Del. Ch. July 6, 2018). After a bench trial, the Chancery Court awarded approximately $20 million to former shareholders of Basho Technologies, Inc. against a minority shareholder using its shareholder consent rights. The opinion explores whether, in the context of financial distress and an attempted rescue financing, minority shareholder consent rights can result in exercising “actual control over the business and affairs” of a corporation, which is the predicate for imposing fiduciary duties on a minority shareholder.
To the extent that a minority shareholder relies upon its blocking rights to obtain what might be viewed as an “unfair” advantage for itself, Basho suggests that there is potential exposure as a fiduciary. The shareholder here used its consent rights to prevent a rescue debt financing to Basho, a highly distressed company. The decision should cause investors to consider carefully relying upon shareholder consent requirements in the context of financial distress.
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