SEC’s Contrary Rules Not Bar to Stockholders’ Meeting to Approve Sale (a/k/a Vesta II)

In Esopus Creek Value LP  v. Hauf, 2006 WL 3499526 (Del. Ch., Nov. 29, 2006), read opinion here , the Chancery Court extended its reasoning in  Newcastle Partners, L.P. v. Vesta Insurance Group, Inc., 887 A.2d 975 (Del. Ch. 2005), read summary here  (including links to commentary and analysis on the topic by Professor Ribstein and others),  and once again “Delaware law comes out on top” to the extent that there were conflicting duties and/or rights under Delaware law compared with SEC rules and regulations.

Time constraints will only allow a brief highlight at this time of the issue addressed:

Whether a corporation’s delinquency in its federal reporting obligations should deprive necessarily that corporation’s common stockholders of the power to authorize a sale of substantially all of the corporation’s assets. The Chancery Court said that the answer, as one should have known from the Newcastle Partners case, supra, is “no”. The failure of the company to file its annual report, according to its view of its SEC obligations, prevented it from calling a shareholders’ meeting to approve the sale. Thus, it planned to file bankruptcy and seek bankruptcy court approval without the approval of its shareholders. The Chancery Court imposed a stipulated injunction preventing such an attempt.

Of course, there is much more discussion warranted about this case and more details and reasoning to recount, but this is all I have time to report now. See the link above to read the whole case. Perhaps my schedule will allow more commentary later.