In re Swisher Hygiene, Inc., 2020 WL 3125415 (Del. Ch. June 12, 2020), the Delaware Court docket of Chancery granted Swisher Hygiene, Inc.’s (“Swisher”) Movement for Interim Distribution and rejected Honeycrest Holdings, Ltd.’s (“Honeycrest”) opposition, holding that the proposed quantity of funds to be held in a reserve for a pending lawsuit between the 2 events (the “Honeycrest Litigation”) was ample safety pursuant to Part §280(c)(1) of the Delaware Normal Company Regulation (the “DGCL”).
After promoting its working belongings, Swisher filed a certification of dissolution in Could 2016 and notified its potential collectors of the dissolution. Via the dissolution course of Swisher resolved the key claims and pending litigation towards it aside from 5 remaining creditor claims and the Honeycrest Litigation. In June 2019, as soon as the statutory claims interval expired, Swisher filed a petition with the Court docket of Chancery and subsequent motions underneath Part 280 searching for a willpower on, amongst different issues, the quantity that will be ample safety to cowl wind-down prices, pending litigation, potential claims, in addition to any unknown or unripe claims. Particularly, Swisher sought approval of a course of to resolve or set a reserve for the remaining 5 creditor claims and the Honeycrest Litigation.
On the time of submitting, Swisher had web belongings in liquidation of roughly $16.279 million. Swisher sought to distribute $10 million to its stockholders, leaving a reserve of $6.279 million along with $1.667 million Swisher had already put aside particularly for the Honeycrest Litigation.
Underneath Part 280(c)(1) of the DGCL, a company that has offered discover to potential claimants “shall petition the Court docket of Chancery to find out the quantity and type of safety that will likely be fairly more likely to be ample to offer compensation for any declare towards the company which is the topic of a pending motion, go well with or continuing to which the company is a celebration.” As soon as a reserve is set to be ample, an interim distribution to the company’s stockholders is permissible.
The Court docket of Chancery first addressed the 5 collectors’ motions to substantiate their claims. The Court docket held that 4 of the claims have been unsubstantiated: one with out prejudice, one based mostly on lack of proof, and two have been barred as a result of the plaintiffs failed to look in court docket. Nonetheless, one declare was appropriately reserved for underneath Swisher’s Movement for Distribution.
The Court docket of Chancery then addressed Honeycrest’s opposition to the Movement for Distribution. Honeycrest is a plaintiff in three lawsuits in New York towards Swisher, which have been filed in 1998, 2001, and 2017 respectively. In 2003, Honeycrest and Swisher entered a tentative settlement settlement for $1.eight million; nevertheless, the settlement was by no means finalized. In its opposition declare, Honeycrest valued the settlement between $6.9 million and $9.2 million. Swisher valued the settlement at $1.eight million.
The Court docket of Chancery famous that, although the Honeycrest Litigation has some benefit, it’s 20 years outdated, its decision stays unclear, trial has not been set, and Honeycrest’s assigned worth is a best-case state of affairs. Primarily based on these elements, the Court docket decided that Swisher adopted correct procedures for judicial dissolution and its reserve was ample to justify an interim distribution.
The Court docket of Chancery emphasised that it was not required to ensure the complete quantity of any judgment a creditor may doubtlessly obtain towards Swisher; reasonably, the court docket was solely required to find out an quantity that was “fairly more likely to be ample to offer compensation for any declare towards the company which is topic of a pending motion, go well with or continuing.” As such, the Court docket of Chancery held the full reserve of $6.9 million would fairly and amply fulfill any judgment obtained by Honeycrest in future litigation with Swisher.