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Delaware Chancery Law Blog Corporate and Commercial Practice in the Delaware Court of Chancery

Receiver Appointed for a Limited Basis

Posted in Case Summaries, Summary Proceedings

In the decision of Rich v. Fuqi International Inc., Civil Action No. 5653-VCG (Del. Ch. June 12, 2013), the Court analyzed a Motion for Rule to Show Cause why Defendant Fuqi should not be held in contempt for breach of the Court’s order directing Fuqi to hold an annual shareholder’s meeting.  In 2012, the Court directed Fuqi to hold such a meeting, which it failed to do.  Fuqi asserted that to do so would be in violation of federal law given that it has not filed audited financial statements.  However, Fuqi failed to explain why such statements have not yet been filed.

The Court declined to impose a significant fine upon Fuqi for failing to comply with the Court’s previous order, given that it would only damage stockholders, and further declined to appoint a receiver to liquidate the company.  Instead, the Court appointed a receiver for a limited basis to take the following actions: (i) evaluate whether audited financials sufficient to comply with SEC regulations can be filed; (ii) if not, evaluate whether an exemption should be sought from the SEC; and (iii) consider any other considerations pertinent to the holding of a shareholders’ meeting.  

This decision is pertinent in that it demonstrates the Court’s broad and equitable powers to appoint receivers to take specific actions on behalf of a company, even if the appointment of a receiver to take such actions was not specifically requested by the moving party.