Journal of Business & Technology Law


CaseBalch Hill Partners, L.P. v. Shocking Technologies, Inc.
Court, StateCourt of Chancery, Delaware
Date of Decision, Type of Case2/7/2013, Appointment of Receiver-Custodian for Insolvent Companies
Case NumberC.A. No. 8249-VCN
CitationC.A. No. 8249-VCN (Del. Ch. Feb. 7, 2013).
  
Facts Of CaseBalch Hill Partners, L.P. moved for expedited proceedings with respect to its petition to appoint a custodian or receiver for Shocking Technologies, Inc. pursuant to DGCL §§226, 229. Both parties conceded that Shocking Technologies, Inc. was in financial distress and would have likely been forced to file for bankruptcy if it was unable to obtain funding relatively quickly. Due to a division amongst the directors for Shocking Technologies, Inc., the company was bereft of any immediate, viable funding options.
  
HoldingThe threat of insolvency to a company is sufficient to raise a possibility of irreparable harm and warrant the granting of expedited proceedings to consider the appointment of a receiver or custodian for the company.
  
Court ReasoningThe court indicated that the standard for expediting a proceeding requires the movant to “articulate a sufficiently colorable claim and show a sufficient possibility of a threatened irreparable injury” that would justify the costs an expedited procedure would impose . DGCL §226 authorizes a court to appoint a receiver or custodian for a company if its business is threatened with irreparable injury as the result of director deadlock. Additionally, DCGL §229 authorizes a court to appoint a receiver or custodian for a company that is insolvent if doing so would serve a beneficial purpose. Reading these two statutes together, the court concluded that the threat of insolvency amounted to a threat of irreparable injury under the DGCL. The court found that Balch Hill Partners, L.P. had managed to state a colorable claim that the Shocking Technologies, Inc. board was unable to act in the face of insolvency, thus warranting the granting of an expedited proceeding.

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