Corwin Cleansing Denied For Company Sold During Restatement Process—Sound Familiar

November 27, 2018

The Delaware Court of Chancery recently denied Corwin cleansing  in a case involving the sale of a public company while it was engaged in a restatement of its prior audited financial statements.

See In re Tangoe, Inc. S’holders Litig.,C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018).  If this sounds familiar, that is because it is the second time in two years that the Court of Chancery has denied a motion to dismiss shareholder litigation on Corwin grounds where the target was in the middle of a restatement process. Together, these decisions suggest that if a board decides to sell the company while under a cloud of an ongoing restatement process, it would need to satisfy a heightened level of scrutiny of its disclosures in order to obtain the benefit of Corwin.  The court in Tangoe, however, sought to reassure practitioners that it is not impossible to satisfy Corwin in a case involving an ongoing restatement by the target, and provided a checklist of the kinds of facts that, if disclosed, would result in pleading stage dismissal of a shareholder lawsuit in such a case.

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This article was republished in the Harvard Law School Forum on Corporate Governance and Financial Regulation.