A recent decision by the Court of Chancery, Jagodzinski v. Silicon Valley Innovation Company, LLC, C.A. No. 6203-VCP (Del. Ch. Feb. 14, 2012), provides an informative analysis of when the Court will appoint a receiver for a limited liability company when it has failed to comply with orders of the Court.
In this case, the limited liability company had failed to comply with numerous court orders, including one requiring the company to provide Plaintiff access to books and records pursuant to 6 Del. C. § 18-305.
Of significance to this discussion, the Court noted as follows:
- Except where the certificate of formation has been cancelled, Delaware law is silent on the appointment of a receiver for a limited liability company.
- Where the LLC operating agreement does not address the issue, the relevant statutory provision is § 18-1104, which provides that “[i]n any case not provided for in this chapter, the rules of law and equity … shall govern.”
- The Court of Chancery has the inherent equitable power to appoint a receiver.
- The appointment of a receiver is an extraordinary remedy.
- The Court will exercise the power to appoint a receiver cautiously and only as necessitated by the exigencies of the case before it.
In applying the above-standards, the Court appointed a receiver over the limited liability company in this case, but the powers of the receiver were limited to those actions necessary to cure the company’s contempt by facilitating the books and records production of the company.