Beal Bank v. WestPoint Int’l, Inc., et al., (Del. Ch., May 30, 2007), read opinion here, is another example, among many cases summarized on this blog, that deals with the intersection of Delaware corporate law and bankruptcy law. This case involves a lender that sought assistance in Chancery Court to vindicate its rights as an alleged shareholder. The lender, Beal Bank, had entered into a Stock Pledge Agreement that allowed it to take shares in the debtor as security upon default. The debtor filed bankruptcy. The automatic stay of Section 362 of Title 11, U.S.C., prevented the enforcement of that Stock Pledge Agreement, which otherwise would have allowed Beal Bank to register the shares in its name. An auction of the debtor took place and the Bankruptcy Court entered a Sale Order authorizing the sale of  substantially all of the debtor’s assets. Beal Bank appealed that order to the U.S. District Court, which vacated all portions of the Sale Order that purported to release the lien of Beal Bank and other creditors. While the asset purchase agreement was being litigated, the debtor proceeded with business as they saw fit. The Chancery Court denied a TRO request in connection with a subsequent meeting of directors where Beal Bank was prevented from voting its "pledged shares".

Beal Bank claims in this case that the actions of the debtor’s board, after the sale, involved breaches of fiduciary duties because it forced them into a minority position and diluted their value.

The Chancery Court denied the motions to dismiss without prejudice, reasoning that  questions of what rights (e.g., as shareholders) Beal Bank possessed after the Sale Order were best answered by the Bankruptcy Court and/or the District Court . The answers to those questions would determine the status and rights of Beal Bank as a shareholder based on the Sale Order, and therefore, would be determinative of issues the Chancery Court would address , such as the duties that the directors may have owed to Beal Bank and whether Beal Bank had the right to be listed as a record shareholder.