Manichaean Capital, LLC v. Exela Technologies, Inc.

251 A.3d 694 (2021)

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Manichaean Capital, LLC v. Exela Technologies, Inc.

Delaware Court of Chancery
251 A.3d 694 (2021)

Facts

SourceHOV Holdings merged into Exela Technologies, Inc. (Exela) (defendant). Manichaean Capital, LLC (Manichaean) (plaintiff) obtained a sizeable appraisal award in connection with the merger. To facilitate payment of the award, the Delaware Court of Chancery entered a charging order against SourceHOV Holdings’ interest in SourceHOV Holdings’ subsidiaries. The order required money that flowed through the subsidiaries to be paid to Manichaean first before any money went to Exela. The appraisal judgment remained unsatisfied, and Manichaean asserted that Exela and SourceHOV Holdings were fraudulently abusing the corporate form to prevent funds from flowing through SourceHOV Holdings’ subsidiaries and instead have the funds flow directly to Exela. Manichaean sought reverse veil-piercing (i.e., piercing the corporate veil downward to impose liability on a business organization for the business-owner’s liabilities) from SourceHOV Holdings to its subsidiaries. Exela moved to dismiss Manichaean’s reverse-veil-piercing claim. The chancery court considered whether Delaware courts should allow reverse veil-piercing by corporate outsiders, such as creditors or other third parties.

Rule of Law

Issue

Holding and Reasoning (Slights, J.)

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