SV Investment Partners, LLC v. ThoughtWorks, Inc., No. 107, 2011 (Del. Supr., Nov. 15, 2011), read Delaware Supreme Court opinion here.

Issue Addressed

Whether SV Investments failed to carry its burden of proof that “legally available funds” were available to redeem its preferred shares.

Short Answer

The judgment of the Court of Chancery determining that SV Investments did not meet its burden was affirmed.

Brief Background

The decision in this case by Justice Henry duPont Ridgely of the Delaware Supreme Court is the latest iteration of litigation between the parties that commenced with a complaint filed in the Court of Chancery in 2005 and which was followed by a second complaint in 2007. Highlights of two prior decisions in this matter are available on this blog here and here. The Chancery decision appealed from, at the foregoing link, should be read for more details.

In essence, as explained in more detail in the Court’s opinion, SV Investment Partners, LLC (“SVIP”), made an investment of $26.6 million in exchange for preferred shares in ThoughtWorks. The investment by SVIP required that ThoughtWorks amend and restate its Certificate of Incorporation to include a “Redemption Provision.” The Redemption Provision included two limitations on the right of redemption, neither of which provided defined terms. One limitation allowed that the redemption could only be made out of “funds legally available.”


SVIP argued at trial that for purposes of the redemption right under the Redemption Provision, “funds legally available” was the equivalent of “surplus”, but that argument was rejected. DGCL Section 160 empowers a Delaware corporation to redeem its shares subject to certain statutory limits, including a prohibition against redemption when the capital of the corporation would be impaired. The capital is impaired “if the funds used in the repurchase exceed the amount of the corporation’s ‘surplus,’ which is defined in DGCL Section 154 to mean the excess of net assets over the par value of the corporation’s issued stock.” “Net assets” are defined as the “amount by which total assets exceed total liabilities.”

The Court of Chancery rejected the expert testimony offered at trial by SVIP’s expert. Moreover, as an alternative holding, the Court of Chancery determined that SVIP had failed to prove its case even under its own definition of “legally available funds.” Because the Supreme Court determined that the record in the case supported the trial’s court’s conclusion that SVIP failed to prove that ThoughtWorks had “funds legally available” (which is not the same as surplus), to satisfy SVIP’s redemption demand, Delaware’s High Court reasoned that it did not need to reach or address the issue of whether the definition proposed by SVIP of “legally available funds” was correct as a matter of law.

The appellate standard of review was explained by the Delaware Supreme Court in this context as follows: “A factual finding based on a weighing of expert opinion may be overturned only if arbitrary or lacking any evidential support.” The Delaware Supreme Court found neither circumstance present in this case as the trial court explained a logical rationale for rejecting the testimony of the expert witness of SVIP. The evidence at trial further demonstrated that if SVIP did obtain a judgment for the amount of the surplus as argued by SVIP’s expert, then ThoughtWorks would not be able to meet its obligations, including payroll, and it would face bankruptcy.


Concluding that there was no reversible error by the Court of Chancery in finding that SVIP failed to meet its burden of proof, the Supreme Court affirmed the judgment of the Court of Chancery.