Delaware Business Litigation Report

Chancery Denies Petition to Appoint Custodian to Revive Abandoned Delaware Corporation for Use as Blank Check Company

In re Forum Mobile, C.A. No. 2020-0346-JTL (Del. Ch. Feb. 3, 2022)
In Forum Mobile, the Court of Chancery denied a petition to appoint a custodian pursuant to DGCL Section 226(a)(3). The petitioner sought to revive an abandoned and defunct Delaware corporation for use as a blank check company. Specifically, the petitioner sought to effectuate a reverse merger of the defunct company with a new business, allowing the new business to access public markets without implementing the formal IPO process. Holding that “the plain language of Section 226(b) does not contemplate that a custodian appointed under Section 226(a)(3) could revivify a corporation,” the Court denied the petition, reasoning that custodians appointed pursuant to Section 226(a)(3) are limited to “liquidating the affairs of the abandoned corporation and distributing its assets.” 

In reaching this decision, the Court noted that for decades it had been the policy of the Court of Chancery to reject attempts to forego the formal IPO process by using the provisions of the DGCL to facilitate the use of abandoned entities to access public markets.  The Court observed that recent developments in federal securities law—specifically, the fact that the SEC was aware of risks posed by reverse mergers with blank check companies but had not prohibited them—made it unclear whether this policy should be followed in this context.  In an attempt to receive clarification on the issue, the Court appointed an amicus curiae to consult with the SEC and provide his recommendation as to whether the petition should be granted.  While the SEC took no position, the amicus ultimately recommended conditional approval of the petition.  The Court denied the petition nonetheless, finding that it had not asked the amicus to address the issue of whether a Section 226(a)(3) appointed custodian had statutory authority to revive an abandoned entity, and that a plain reading of the provision clearly established that no such authority existed.

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