Chancery Applies New DGCL Section 205 for First Time

In re Trupanion, Inc., C.A. No. 9496-VCP, Order (Del. Ch. April 28, 2014).

Why this Case is Noteworthy:  This is the first decision by the Delaware Court of Chancery applying new Section 205 of the Delaware General Corporation Law which became effective on April 1, 2014.  This provision allows Delaware corporations to petition the Court of Chancery to either validate or invalidate certain corporate acts that may be of questionable validity.  For example, this case involved purported written consents of shareholders that did not comply with the DGCL, and also involved a reincorporation which was not authorized by the board of directors.

New Section 204 of the Delaware General Corporation Law provides for non-judicial, “self-help” procedures to address acts which in the past would involve a determination by the Court of Chancery regarding whether they were voidable, in which case they could be cured – - or if they were determined to be void, in which case they were incapable of cure by the Court, regardless of the equities.

A recurring problem in the past that this new statute is designed to address was the lack of clarity in the law about whether a particular disputed corporate act was void or voidable. The new Section 205 allows the Court of Chancery to provide a prompt judicial determination of previously uncertain corporate situations created by corporate acts of dubious validity.

In this particular case, within one month of filing the petition, the Court issued a final order recognizing the validity of certain stock issuances and determining the composition of the board of directors, as well as related matters.