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A recent decision in the Delaware Chancery Court broadens the risk of inter-corporate liability by endorsing the theory of “reverse” veil-piercing, where a plaintiff can reach down to the assets of a parent company’s subsidiaries.
1 Although many plaintiffs in the past have pursued theories predicated on reverse veil-piercing, the decision from Vice Chancellor Slights is the first time the theory has been formally endorsed by a Delaware court.
The
Manichean case arose in the context of an appraisal proceeding, where stockholders of a company that intends to merge with another company can either elect to participate in the merger or dissent and seek statutory appraisal of their shares. When the board of SourceHOV Holdings, Inc., a business outsourcing company, presented stockholders with a proposed merger with Exela Technologies, Inc., some stockholders dissented and sought statutory appraisal. After a lengthy appraisal process, and an appeal by SourceHOV, the stockholders prevailed and their shares were appraised at a higher price than they would have received via the merger. After the judgment was entered against SourceHOV, plaintiffs allege that Exela—the new parent company—executed a scheme to prevent post-merger SourceHOV from satisfying the judgment. Plaintiffs asked the court to pierce the corporate veil downwards to enforce the judgment against SourceHOV’s solvent subsidiaries.