One major requirement for the appointment of a receiver under Section 291 of the DGCL is establishing the insolvency of the corporation.  The burden of establishing insolvency lies with the party seeking the appointment of a receiver.  See Banks v. Christina Copper Mines, Inc., 99 A.2d  504 (Del. Ch. 1953). Of note, the Court of Chancery will not appoint a receiver under this section if there is any doubt as to whether the company is insolvent.

One other point that should be kept in mind is that if the company is no longer insolvent after the filing of the petition, the court will not appoint a receiver.  See id.

Under Section 291, a corporation is insolvent if either (1) its liabilities exceed its assets, or (2) it is unable to meet its currently maturing obligations in the ordinary course of business.  8 Del. C. § 291.  It should be noted that these definitions have been construed narrowly by the Court.  In addition, debts that are genuinely disputed will not be counted for the purpose of determining insolvency.

Below are links to prior posts concerning the appointment of a receiver to an insolvent corporation under Section 291 of the DGCL:

Appointing Receiver to an Insolvent Corporation Under Section 291 of the DGCL: Who has Standing to Seek Appointment?

Appointment of a Receiver to an Insolvent Delaware Corporation

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.