Stream TV Networks v. SeeCubic: Delaware Court Rejects ‘Board Only’ Bankruptcy Exception – Corporate/M&A Decision Update Series | Hogan Lovells

Stream TV Networks, Inc. (Stream), a company that develops and commercializes technology that enables viewers to watch 3D content without 3D glasses, is in financial trouble. In 2019, several Stream shareholders proposed restructuring Stream, but the Rajan brothers, founders and directors of Stream, rejected the proposed Omnibus Agreement. However, after financial difficulties continued into 2020, Stream’s two newly appointed non-executive directors said they had “a full board of directors to resolve any existing or future debts, defaults, or claims. Having the power and authority to form a settlement committee, “existing or future”, approved the omnibus agreement. The omnibus deal stipulated that Stream would allocate its assets to his SeeCubic, a new corporate entity. Holders of Stream’s Class A common stock were entitled to exchange an equal number of shares of SeeCubic common stock, and Stream itself was issued 1 million shares of his SeeCubic Class A common stock.

On September 8, 2020, Stream, through the Rajan brothers, filed a lawsuit barring SeeCubic from seeking enforcement of the Omnibus Agreement. SeeCubic has filed a counterclaim against Stream and a third party claim against the Rajan brothers. A Delaware Chancery Court temporarily and then permanently stopped Stream and the Rajan brothers from interfering in the Omnibus Agreement. The Court ruled that the Settlement Board had the power to bind Stream to the Omnibus Agreement, and that DGCL § 271 (a Delaware corporation must have all or substantially all of its boards or governing bodies in the best interest of that corporation). (their property and assets are in the best interest of the company), or the Class Vote Clause (Class Vote Clause) of Stream’s Charter invalidated the Omnibus Agreement. The court found it ambiguous as to whether § 271 applies to the type of assignment in question. Building on its legislative history, the court concluded that § 271 does not replace traditional common-law rules that require unanimous shareholder approval before selling all of a company’s assets. I was. However, the court further concluded that there was a bankruptcy exception to the common law rule so that a financially insolvent company could sell the company’s assets without shareholder approval.

Stream and Rajans appealed, presenting four main allegations. (2) The court erred by first considering section 271 before interpreting the articles of incorporation of the corporation. (3) § 271 superseded such common law exceptions, provided that such exceptions ever existed. (4) The ruling, as a matter of public policy, would disrupt and undermine Delaware’s focus on contractualism and the predictable application of corporate law, including § 271.

In addressing whether the class voting provision requires the approval of the class B majority shareholders of the omnibus agreement, the Delaware Supreme Court ruled that the en banc court applied its interpretation of section 271 to the clear and distinct language of the articles of incorporation. By doing so, you agree with Stream that you have improperly analyzed this issue. regulation. The Delaware Supreme Court ruled that the Omnibus Agreement resulted in an “asset transfer” under Stream’s charter and required the votes of Class B shareholders pursuant to the Class Voting Rules. The Delaware Supreme Court rejected the full court’s reliance on the language of §271 as an interpretation guide in interpreting the language of the class ballot clause, holding that the bankruptcy exception does not exist. In addition, the Delaware Supreme Court ruled that the bankruptcy exception, which allows the board of directors alone to sell all of a company’s assets, introduces uncertainty and potential contradictions to general corporate law in Delaware and, in turn, We determined that it would undermine the jurisdiction’s status as a contracting country. .

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