The Delaware Court of Chancery recently held that the Delaware General Corporation Law’s Section 211 requirement to hold an annual stockholders meeting will be enforced even if it appears to conflict with certain provisions of the federal securities laws. In the case, Plaintiff, George Rich, Jr., brought an action to compel a meeting of the stockholders of Defendant, Fuqi International, Inc., a Delaware corporation. Fuqi requested a partial judgment and, in the alternative, applied for certification for interlocutory appeal from a prior holding that Fuqi had to hold its annual meeting even though it claimed it could not satisfy the Securities and Exchange Commission’s requirement to produce audited financial statements before such meeting. Fuqi claimed its audited financial statements were being corrected and that the annual meeting would have to be delayed until the statements were revised so they could then be sent to the stockholders in compliance with the SEC rules and regulations.
In its memorandum opinion, the Court refused to accept Fuqi’s position that the company had been managed in such a way that it could not comply with the SEC’s proxy rules and therefore it should not be subject to any oversight by stockholders by way of an annual meeting. Such a position, according to the Court, “stands the purpose of corporate and securities laws on its head.” The Court went on to state that “a stockholder’s right to a meeting is especially strong when financial management is so questionable as to delay the provision of audited financial statements for three full years.” The decision reaffirmed the Court’s view that annual stockholders meetings are important and necessary, and will be enforced by the Court when appropriate.
Rich v. Fuqi Int’l, Inc., C.A. No. 5653-VCG (Del. Ch. Nov. 5, 2012)