A recent Delaware Court of Chancery transcript ruling is notable for stating that there is no per se affirmative obligation, absent a request for stockholder action, in a closely held company, to produce financial statements. The court held, however, that under certain circumstance, for example in response to a demand under DGCL Section 220, it could raise a fiduciary duty question if no financial statement were prepared in order to keep the minority “in the dark.” The Ravenswood Investment Company, L.P. v. Winmill & Co. Inc., C.A. No. 7048-VCN (Transcript) (Del. Ch. Feb. 25, 2016). Note that transcript rulings are often cited as “good authority” in Delaware briefs (and formal court opinions.)

The short transcript ruling follows many other decisions in this long running dispute between the parties, and some of those prior Delaware rulings have been highlighted on these pages. Three statements of law that are helpful for purposes of those engaged in Delaware corporate and commercial litigation can be summarized as follows:

1)         There is no duty per se to provide financial statements in a closely-held company when stockholder action is not being requested. See Slip op. at 7.

2)         Based on the facts of this case, the court did allow a claim for breach of fiduciary duty based on the allegation that no financial statements were provided or even created as a means of thwarting a pending Section 220 claim and “keeping the stockholders in the dark.”

3)         The court allowed an amendment to a complaint in a case that appears to have been languishing for several years although the transcript does not elaborate on the potential justification for that situation transpiring.

SUPPLEMENT: Keith Bishop on his California Corporate and Securities Law blog, comments on this case by noting that despite Delaware law, if a Delaware company has its main office in California or regularly holds board meetings there, it may be required to produce annual reports pursuant to California law.

SUPPLEMENT II: The estimable Professor Stephen Bainbridge provides scholarly insights about this decision with citations to authorities and learned commentary.