Company cannot wield its failure to provide notice as sword against stockholders

By Anne Sherry, J.D.The Delaware Court of Chancery ruled that while an action to determine board composition under Section 225 is narrow in scope, the court may consider allegations of inequitable conduct to the extent germane. The dispute, between a stockholder of SPAR Group, Inc., and its board, is still in discovery, and the court will permit the directors to advance their defense that the plaintiff acted inequitably. Ruling against the directors, however, the court held that the company’s failure to provide prompt notice of director consents to shareholders did not preclude the consents’ effectiveness (Brown v. Kellar, December 21, 2018, Zurn, M.).The plaintiff’s action under Section 225 of the Delaware General Corporation Law sought a determination that written consents he and another stockholder delivered to the board in July 2018 removed and replaced an incumbent director. The director defendants opposed the plaintiff’s motion for summary judgment…

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