In re Geneius Biotechnology, Inc.
2017-0297-TMR
Del. Ch.Dec 8, 2017Background
- Geneius Biotechnology, Inc. is an early‑stage Delaware biotech (T‑cell therapy) with one pending U.S. patent application, limited cash, and roughly $500–$600k in accounts payable as of the petition.
- Founder/CEO Dr. Alfred Slanetz (majority controller) opposes minority stockholder Empery Asset Master Ltd., which invested earlier and seeks a receiver under 8 Del. C. § 291.
- Procedural posture: Empery filed a verified petition for a receiver alleging insolvency; expedited trial occurred and the Court issued this post‑trial opinion denying the petition.
- Key factual points: Geneius received ~$10M in 2015 (including Empery), has little operating revenue, reduced payroll and operating expenses, and Slanetz made an interest‑free $78k loan and pledged to continue funding as needed.
- Disputed asset valuation: Respondent presented a schedule valuing assets at roughly $892,547 (cash, equipment, and Karolinska‑related assets); petitioner presented no independent asset valuation and challenged portions of respondent’s evidence.
- Disputed liabilities: Parties agreed on about $185k undisputed non‑legal payables and legal fees of roughly $419,913; the Court treated total liabilities as about $605k for insolvency analysis.
Issues
| Issue | Plaintiff's Argument (Empery) | Defendant's Argument (Slanetz/Geneius) | Held |
|---|---|---|---|
| Whether Geneius was insolvent under balance‑sheet (assets < liabilities) test | Liabilities exceed assets; company has no meaningful assets beyond IP and Karolinska funds | Respondent put forward asset valuations (equipment, Karolinska funds); petitioner produced no competent valuation of IP | Court: Petitioner failed to prove insolvency by clear and convincing evidence; assets shown likely exceed liabilities or are at least not proven deficient |
| Whether Geneius was cash‑flow insolvent (cannot meet maturing obligations) | Company lacks cash to pay outstanding invoices and is selecting which invoices to pay | Company pays necessary operational invoices, has arrangements/disputes with some vendors, and CEO committed continued personal funding | Court: Petitioner did not meet burden; credible evidence CEO funds operations and company is meeting critical payments |
| Whether appointment of a receiver is necessary under "insolvency plus" standard | Control by Slanetz without independent oversight risks destruction of value; receiver needed to protect creditors/shareholders | Dispute is essentially a business disagreement; no demonstrated exigent harm or hopeless insolvency warranting receiver | Court: Because insolvency not established, § 291 does not apply; even on facts, petitioner failed to show the additional "plus" justification |
| Evidentiary burden on valuation and proof | Empery contends respondent’s asset valuations are speculative and some items should be disregarded | Respondent presented business records, testimony, and corroboration; petitioner offered no independent valuation of IP | Court: Burden rests on petitioner to prove insolvency by clear and convincing evidence; petitioner failed to present sufficient competent valuation evidence and thus lost on proof |
Key Cases Cited
- Prod. Res. Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772 (Del. Ch. 2004) (describes the “insolvency plus” standard and definitions of insolvency in receivership context)
- Quadrant Structured Prods. Co. v. Vertin, 115 A.3d 535 (Del. Ch. 2015) (discusses application of balance‑sheet/irretrievable insolvency test in receivership proceedings)
- Banks v. Cristina Copper Mines, Inc., 99 A.2d 504 (Del. 1953) (board loans to company insufficient alone to require appointment of receiver)
- Freeman v. Hare & Chase, 142 A. 793 (Del. Ch. 1928) (early articulation of cash‑flow and balance‑sheet concepts of insolvency)
- Kenny v. Allerton Corp., 151 A. 257 (Del. Ch. 1930) (instructs receivership is inappropriate if insolvency has been removed)