Delaware Court Denies Reargument on Novel Stockholder Ratification Ruling
In June, Delaware Chancery Court Vice Chancellor Joseph Slights ruled as a matter of first impression an “unauthorized” act the majority of stockholders entitled to vote that declined to authorize but the corporation determined to pursue, was not a “defective corporate act” under Section 204 of the Delaware General Corporation Law (DGCL) that is subject to later validation by ratification of the stockholders using Section 205. DGCL Sections 204 and 205 were enacted in 2014 and in reviewing the statutory text and their legislative history, the court concluded neither supported the statutes’ usage to ratify a corporate act that had been denied by the majority of a corporation’s stockholders. The court determined the majority stockholder’s deliberate decision to revoke his consent to Series B Financing was not the type of “failure of authorization” that Section 204 contemplates as subject to later ratification; rather it was a classic example of a majority stockholder exercising its franchise to vote “no” on a corporate proposal. In considering rehearing, the court was not persuaded by what it called a “rehash” of the company’s arguments on the motion to dismiss.