June 01, 2018

MONTH-IN-BRIEF: Corporations, LLCs & Partnerships

Lawrence A. Goldman, Tarik Haskins

Limited Liability Companies

LLC Certificate of Cancellation Nullified Where Reserve for Known Claims Was Not Established

By Lawrence A. Goldman, Gibbons P.C.

In Kevin Capone, et al. v. LDH Management Holdings LLC, et al, the issue was whether an LLC had been dissolved in violation of Section 18-804(b)(1) of the Delaware Limited Liability Company Act which requires that the dissolving company pay or make provision to pay all claims, “including all contingent, conditional or unmatured contractual claims known to the [LLC].”  Plaintiffs’ interests in the LLC had been redeemed and they contested the valuation utilized for the redemption payments.  The subject LLC was dissolved and no reserve was set aside with respect to plaintiffs’ claims.  Defendants contended that the valuation for purposes of the redemption payments had been consistent with the terms of the LLC agreement, no contractual breach had occurred and, accordingly, no reserve was required for claims that they believed would be unsuccessful.  The Chancery Court stated that plaintiffs’ claims of a contractual breach were not frivolous, and that because defendants were aware of such claims at the time of the LLC’s dissolution, the LLC Act required the creation of a reserve to cover the claims.  Thus, the Court held that LLC was dissolved in violation of Section 18-804(b)(1) and the certificate of cancellation was nullified.

Tarik Haskins

Partner; Morris, Nichols, Arsht & Tunnell LLP

Tarik is a partner in the Commercial Law Counseling Group. His practice covers a range of commercial transactions including mergers and acquisitions, secured financings, joint ventures, and business counseling.

Lawrence A. Goldman

Counsel, Gibbons P.C.

Larry, a member of the Corporate Department of Gibbons P.C., counsels middle market and smaller public company clients on a broad array of corporate and transactional matters, focusing on mergers and acquisitions (domestic and cross-border); capital formation and finance; governance; private placements and securities law compliance; distressed business restructuring and the corporate aspects of bankruptcy reorganization; and the organization and governance of joint ventures. He has substantial experience representing audit committees and other special board committees in corporate governance and internal investigation matters. He is a frequent speaker nationally on corporate matters, with a particular emphasis on the organization and operation of businesses as limited liability companies or other alternative entities. He is the author of The New Jersey Limited Liability Company Forms and Practice Manual and has been engaged as an expert witness on alternative entity governance and other corporate issues in litigation arising from transactional matters. Larry is a graduate of Colgate University, Boston University School of Law, and New York University School of Law (LL.M Taxation).