The Delaware Court of Chancery has rejected the argument asserted by a preferred stockholder that the terms "surplus" and "funds legally available" have the same meaning when used in connection with stock redemption rights.

ThoughtWorks, Inc. issued over 94% of its Series A Preferred Stock to SV Investment Partners, LLC. The terms of the preferred stock required ThoughtWorks to redeem its preferred shares in certain instances "for cash out of any funds legally available therefor." In 2005, SV Investment Partners sought to have its preferred stock redeemed. The Board of Directors of ThoughtWorks determined that it did not have funds legally available to redeem all of SV Investment Partners' preferred stock at once. SV Investment Partners sued to require ThoughtWorks to redeem all of its preferred stock, arguing that ThoughtWorks had surplus and that "surplus" has the same meaning as "funds legally available."

The court rejected this argument and concluded that "funds legally available" contemplates a form of cash that can be legally used to redeem the preferred stock, whereas "surplus" refers to the amount by which a corporation's assets exceeds its stated capital. Moreover, the court held that funds are not legally available for a redemption if the result of the redemption causes the issuer to become insolvent. The issuer's board of directors is to determine whether funds are legally available for a redemption.

SV Investment Partners, LLC v. ThoughtWorks, Inc., C.A. No. 2724, WL 2010 4547204, (Del. Ch. Nov. 10, 2010)