DealLawyers.com Blog

I’m a really bad golfer, so on the rare occasions when I do play, I’m always glad when my partner’s willing to give me a “mulligan.”  I’ll exercise my right to remain silent when it comes to my skills as a lawyer – but I was glad to see that the Delaware Chancery Court recently signed off on a mulligan for the defendants in Almond v. Glenhill Advisors (Del. Ch. 8/18).

In that case, the Court rejected the plaintiffs’ efforts to unwind a merger due to a defective pre-deal stock split. Instead, it held that the buyer’s actions to ratify defective corporate acts under the procedure established in Section 204 and 205 of the DGCL after the closing were sufficient to cure the defects.

Among other things, the plaintiffs alleged that too much time had elapsed since the defective acts to permit use of the statutory ratification procedure – and that the act therefore should not be viewed as a “failure of authorization” within the meaning of the statute.  The Chancery Court rejected that out-of-hand:

The plain language of Section 205 does not contain a temporal limitation on the court’s power to validate defective corporate acts, nor would such a limitation make sense where, as here, the effect of a defective corporate act may not manifest itself until years into the future. As noted previously, our Supreme Court has emphasized the need to “read broadly” the term “failure of authorization” to “cure inequities” and “to address any technical defect that would compromise the validity of a corporate action.

Given the highly technical nature of the defect & the Court’s conclusion that “the equities overwhelmingly support correcting this obviously unintended defect,” it concluded that the buyer’s actions were sufficient to ratify the pre-merger defective actions under Delaware law.

– John Jenkins