The Delaware Court of Chancery’s recent decision in TCV VI L.P. v. TradingScreen, C.A. No. 10164-VCN (Del. Ch. Mar. 27, 2015), provides important guidance to preferred stockholders regarding the enforceability of mandatory redemption provisions when the corporation providing those rights is in financial distress. In TradingScreen, Vice Chancellor John W. Noble held that preferred stockholders of TradingScreen were not entitled to summary judgment on claims seeking to enforce a mandatory redemption provision in TradingScreen’s charter because issues of fact existed as to whether the redemption would have impaired TradingScreen’s ability to continue as a going concern.
Background
TradingScreen’s corporate charter provided its preferred stockholders with mandatory redemption rights. Specifically, TradingScreen’s charter authorized a majority of preferred stockholders to request TradingScreen to help the preferred stockholders sell their shares on satisfactory terms and conditions. If no buyer would purchase the preferred stock on satisfactory terms, then the preferred stockholders were authorized to require TradingScreen to purchase all or a portion of their shares by delivering written notice of the number of shares they wanted redeemed.
