Due to the relative lack of abundant, comprehensive case law analyzing the criteria the court will use to determine the amount of security deemed sufficient for purposes of satisfying DGCL Section 280 in connection with seeking court approval of a dissolution, and related distributions, the recent Court of Chancery decision in the matter of In Re Swisher Hygiene, Inc., C.A. No. 2018-0080-SG (Del. Ch. June 12, 2020), strikes this litigator as noteworthy, or at least blogworthy.
In particular, in this case the court was called upon to determine, in connection with a motion to approve an interim distribution as part of the petition for dissolution, whether the proposed amount of funds to be held in reserve for a pending lawsuit, and other claims, was sufficient security pursuant to DGCL Section 208(c)(1). Footnote 12 includes a citation to two Orders in other cases that addressed similar Section 280 issues. That the court cited two prior Orders, as opposed to citing to prior formal Opinions, is an indication of the relative paucity of robust decisional law on this topic.
By way of an aside and for context, there are two primary ways to pursue a formal dissolution under the Delaware General Corporation Law, as described in a Chancery decision highlighted on these pages a number of years ago. One method is to seek court approval as a “judicial imprimatur” for how creditors are handled, especially if there are insufficient assets to satisfy all pending claims. Another option is non-judicial, which, as the name implies, does not have the benefit of a judicial blessing. A third option, not recognized in the DGCL, and followed in some instances by those who do not have the money, or prefer not to spend the money, to pursue a formal dissolution process–often because the amount of assets at stake may not be worth the expense–may be referred to colloquially as “turning off the lights; closing the door; and walking away.” Not recommended, however.