250 A.3d 1016
Del. Ch.2020Background
- Stream was insolvent by early 2020 (defaults on SLS and Hawk secured notes, >$50M secured debt, >$16M trade debt, missed payroll); SLS and Hawk held security interests in all Stream assets.
- On March 12, 2020, Stream’s only two directors (Mathu and Raja Rajan) executed a written consent adding four independent outside directors to the Board; Stream publicly treated them as directors.
- On May 4, 2020 the Board validly created a Resolution Committee (members: Asaf Gola and Kevin Gollop) and delegated authority to resolve Stream’s creditor claims.
- On May 6, 2020 the Resolution Committee approved the Omnibus Agreement: Stream would transfer all assets to a newly formed entity (SeeCubic) controlled by SLS and Hawk in satisfaction of their secured claims; minority holders could swap into SeeCubic; Stream would receive one million SeeCubic shares. The Agreement included a power of attorney to effectuate transfers.
- The Rajan brothers later attempted to nullify the transaction, preparing a purported (backdated) stockholder consent to remove the outside directors and took other steps to obstruct transfer; Stream filed suit seeking a preliminary injunction to enjoin enforcement of the Omnibus Agreement.
Issues
| Issue | Plaintiff's Argument (Stream) | Defendant's Argument (SeeCubic) | Held |
|---|---|---|---|
| 1) Did the Resolution Committee have authority to approve the Omnibus Agreement because the outside directors were validly appointed? | March Director Consent was defective; outside directors not validly appointed; therefore committee lacked authority. | The Rajan brothers validly expanded the Board by unanimous written consent; outside directors were de jure directors. | Court: March consent, though informal, validly appointed the outside directors; at minimum they were de facto directors; Resolution Committee validly bound Stream. |
| 2) Did a purported stockholder consent remove the outside directors before the committee acted? | Rajan brothers executed a May 6 stockholder consent removing Gola/Gollop before May 6 approval. | The May Stockholder Consent was backdated and not executed until May 8–9; committee approval preceded removal. | Court: Evidence supports backdating; removal occurred after the committee approved the Omnibus Agreement. |
| 3) Did the Omnibus Agreement require stockholder approval under DGCL § 271 or Stream’s charter (Class Vote Provision)? | The transfer is a sale/exchange of all assets triggering §271 and the charter’s class-vote requirement. | Transaction is a voluntary private foreclosure/replacement of secured-creditor enforcement by an insolvent debtor; §271 and the charter provision do not apply to transfers to secured creditors effectuating foreclosure; §272 and statutory history support that reading. | Court: §271 and the charter’s parallel class-vote clause do not apply to this insolvency-driven transfer to secured creditors; no stockholder vote required. |
| 4) Did members of the Resolution Committee breach fiduciary duties such that business judgment protection is unavailable? | Committee breached duties or acted inappropriately, so transaction should be enjoined. | Committee members were independent, acted in good faith to avoid foreclosure and preserve value; business judgment rule applies. | Court: No evidence of interest, lack of independence, or bad faith; business judgment rule applies; no reasonable likelihood of success on fiduciary claims. |
Key Cases Cited
- Butler v. New Keystone Copper Co., 93 A. 380 (Del. Ch. 1915) (recognizing failing-business exception to common-law rule requiring unanimous stockholder consent for sale of all assets)
- Allied Chem. & Dye Corp. v. Steel & Tube Co. of Am., 120 A. 486 (Del. Ch. 1923) (historical discussion of sale-of-assets authority and statutory context)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (formulation of the business judgment rule)
- Revlon, Inc. v. MacAndrews & Forbes Hldgs., Co., 506 A.2d 173 (Del. 1986) (preliminary injunction framework and fiduciary-review context)
- In re Trados Inc. S'holder Litig., 73 A.3d 17 (Del. Ch. 2013) (tiers of review for director decisionmaking)
- Eddington v. Turner, 26 A.2d 80 (Del. Ch. 1942) (equity regards as done; validity of informal corporate acts)