C.A. No. 3017-CC (Del. Ch. February 24, 2009)
On February 24, 2009, Chancellor Chandler issued a two-page order in Fisk Ventures, LLC v. Segal, et al. addressing several aspects of the Order and Decree of Judicial Dissolution of Genitrix, as to which the parties could not agree upon the form and content of the petitioner’s form of order. One of Chancellor Chandler’s conclusions merits additional attention.
Chancellor Chandler states: “Paragraph 4: Because any liquidator will undoubtedly require to be paid in advance for their services to act as a receiver, someone must first pay for those services. It is only fair and reasonable that whoever pays for those services would be entitled to a senior loan to ensure that they are reimbursed. Consequently, I agree with petitioner’s language in this paragraph.”
Chancellor Chandler appears to conclude that a receiver or liquidator (or one who pays such receiver or liquidator on behalf of the entity) has priority over other creditors, as the receiver or liquidator “will undoubtedly require to be paid in advance.” The granting of such priority to the receiver or liquidator is curious in light of Section 18-804(a)(1) of the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101, et seq. (the “LLC Act”). Section 18-804(a)(1) of the LLC Act states, “Upon the winding up of a limited liability company, the assets shall be distributed as follows: (1) To creditors, including members and mangers who are creditors, to the extent otherwise permitted by law, in satisfaction of liability of the limited liability company (whether by payment or the making of reasonable provision for payment thereof) other than liabilities for which reasonable provision for payment has been made and liabilities for distributions to members and former members under §18-601 or §18-604 of this title.”
The full opinion is available here.