C.A. No. 3639- VCN (Del. Ch. Dec. 15, 2008) (V.C. Noble)
In this case, Vice Chancellor Noble denied a stockholder’s motion for default judgment with respect to a petition for the appointment of a custodian for a dormant corporation possessing a stock symbol and an open account with Pink Sheets. A stockholder of the dormant corporation sought the appointment of a designated custodian, pursuant to 8 Del. C. § 226(a)(3), to revive the corporation and to thereafter “find a merger partner,” presumably to permit an entity which is not publicly traded to reach the public market more cheaply and more easily than if the private entity went public on its own. At the outset, the Vice Chancellor emphasized that “[e] ntry of a default judgment is permissive,” and noted that additional discretion was conferred by the language of 8 Del. C. § 226(a)(3) (which suggests that the Court of Chancery “may,” upon application, appoint a custodian under such circumstances). The Vice Chancellor declined to exercise his discretion under the facts before him, finding that the stockholder had not shown any “useful purpose for the revival of OneSource” since his objective could be readily accomplished “through new corporate and other appropriate filings.” While the stockholder’s motivations “are generally not relevant for perfunctory corporate registration purposes,” such motivations “may become important in informing the Court’s discretion as to whether to appoint a receiver or a custodian.” Though the Court made no finding that the stockholder’s proposed actions would be illegal, improper or fraudulent, the Court was nevertheless swayed by both “[t]he potential for untoward results” as well as “the absence of any apparent or expressed material purpose.” As “[c]ompliance with ordinary procedures to establish a business entity” would present a “preferable” and readily available alternative, the Court denied the stockholder’s motion for default judgment.
The full opinion is available here.