Chancery Explains Standards of Review for Receiver Determinations and Shifts Fees and Expenses in Dissolution

Morris James LLP

In re Dissolution of Jeffco Management, LLC, C.A. No. 2018-0027-PAF (Del. Ch. Aug. 16, 2021)

When the Court of Chancery appoints a receiver to effectuate a company’s dissolution, certain determinations are subject to de novo review and others are given a more deferential review depending on the nature of each determination. Here, the Court appointed a receiver to effectuate the relevant LLC’s dissolution based on a deadlock between the two members. Upon review of the record, the receiver found that one of the members had a negative capital account balance and decided to distribute the company’s assets in-kind to the other member with a positive capital account balance. The member with the negative account balance challenged that decision based on various objections. 

Upon judicial review, the Court of Chancery explained that a receiver’s determinations “as to claims and to accounts” will be subject to de novo review under court rule, but where the receiver has exercised powers that would rest with the manager, the standard of review for that decision “should be at least as deferential” as the standard that would apply to the manager’s decision in the same context. Applying those rules here, the Court affirmed the receiver’s determinations and dismissed the objecting member’s challenge. In addition, the Court held that the cost of the receiver’s fees and expenses and some of the other member’s attorneys’ fees and expenses should be shifted to the objecting member under the bad faith exception to the American Rule and the Court’s discretionary authority over receivership costs. Among the objecting member’s misconduct was improperly redirecting profit distributions, manufacturing a false narrative regarding his account balance, and taking other wasteful and dilatory actions during the proceeding.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morris James LLP | Attorney Advertising

Written by:

Morris James LLP

Morris James LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.