Rich v. Fuqi Int'l Inc., C.A No. 5653-VCG (Del. Ch. June 12, 2013) (Glasscock, V.C.)
In this letter opinion, the Court of Chancery found that Fuqi International, Inc. (“Fuqi”) was in contempt of two Court orders requiring the corporation to hold an annual stockholders’ meeting and appointed a receiver to ensure that Fuqi holds a stockholders’ meeting within ninety days of the date of the letter opinion.
Plaintiff, a stockholder of Fuqi, brought an action seeking to compel Fuqi to hold a stockholders’ meeting pursuant to Section 211 of the Delaware General Corporation Law. After Fuqi failed to comply with two separate orders of the Court directing Fuqi to hold a stockholders’ meeting by set dates, Plaintiff moved to hold Fuqi in contempt of the Court’s orders. Plaintiff sought monetary sanctions or appointment of a receiver to liquidate the corporation. Conceding that it had not complied with the Court’s orders, Fuqi argued that its board could not do so because it was prohibited under federal securities law from going forward with a stockholders’ meeting because the corporation had not filed audited financial statements with the SEC.
The Court rejected Fuqi’s argument, noting that Fuqi had failed to explain why it had not produced audited financial statements for several years and failed to suggest when it might do so. Accordingly, the Court ruled that Fuqi was in contempt of the Court’s orders but found Plaintiff’s suggested remedies to be overly “coercive” and “draconian.” The Court determined that the appropriate remedy was appointment of a receiver with more limited power and directed that the receiver should ensure that Fuqi holds a stockholders’ meeting within ninety days of the letter opinion. To carry out the order, the Court directed that the receiver should (1) evaluate whether audited financials sufficient to comply with SEC regulations could be filed; (2) if not, evaluate whether an exemption should be sought from the SEC; and (3) explore any other considerations pertinent to a holding of the stockholders’ meeting. The Court noted that the receiver could seek a modification of the timetable if doing so would be in the best interest of Fuqi and its stockholders.