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Theodora Holding Corp. v. Henderson - 257 A.2d 398 (Del. Ch. 1969)

Rule:

For a court to order a dissolution or liquidation of a solvent corporation, the proponents must show a failure of corporate purpose, a fraudulent disregard of the minority's rights, or some other fact which indicates an imminent danger of great loss resulting from fraudulent or absolute mismanagement.

Facts:

Plaintiff, Theodora Holding Corporation, was the holder of record of 11,000 of the 40,500 issued and outstanding shares of common stock of the defendant Alexander Dawson, Inc. Theodora Holding Corporation alleged that through several separate transactions, Girard B. Henderson, the president of the corporation mismanaged the same, and engaged in several expenditures for his own benefit to the detriment of the corporation. Such transactions included the purchase of a seat on the New York Stock Exchange and the donation of monies to a charitable trust. As such, Theodora Holding Corporation filed a derivative action seeking to the appointment of a liquidating receiver for the corporation.

Issue:

Taking into consideration the circumstances of the case, should Theodora Holding Corporation’s request for a liquidating receiver for the corporation be granted?

Answer:

No.

Conclusion:

After reviewing the transactions, the court denied the request for a receiver because none of the separate transactions that Theodora Holding Corporation relied on demonstrated gross mismanagement or a threat to the corporation's existence as a viable business entity. The transactions, considered separately or cumulatively, not only failed to demonstrate the type of corporate perversion or self-dealing which would warrant interference by a court of equity, but the transactions were also shown to have been reasonable corporate acts within the business judgment rule.

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