## Facts

- Shocking Technologies, Inc., a privately held Delaware corporation, was a venture-backed startup with minimal revenue and ongoing losses, dependent on outside financing to continue operating.
- The company’s investors included preferred stockholders with board representation; governance disputes arose over board control and the company’s capital structure during severe financial distress.
- The company pursued additional capital as a means of survival, including efforts related to an existing investor seen as a key remaining source of funding.
- In related litigation, the Court of Chancery found that a director associated with a preferred-investor group acted disloyally by attempting to discourage the company’s key potential financing source and by sharing confidential information; the court found no material damages and did not award fee shifting.
- After the fiduciary-duty trial, the parties continued litigating the company’s distress and control issues, including a petition seeking appointment of a receiver under 8 Del. C. § 291.
- Shocking did not contest that it was insolvent in the sense of being unable to pay its debts as they came due, but argued that a receivership would disrupt financing and operations and would harm the company rather than preserve value.

## Issues

1. Whether an insolvent Delaware corporation must receive a court-appointed receiver under 8 Del. C. § 291 based on insolvency alone.
2. What showing is required for the Court of Chancery to grant the extraordinary remedy of receivership, including whether the remedy would likely protect or instead harm the corporation and its stakeholders.
3. How (if at all) related findings of director misconduct and governance conflict bear on the necessity for receivership or other structural relief.

## Decision

- The Court of Chancery denied the application to appoint a receiver.
- The court accepted that the company’s financial condition could satisfy insolvency in a cash-flow sense, but held that insolvency alone did not mandate a receiver.
- The court treated receivership as an extraordinary remedy and concluded that, under the circumstances presented, imposing a receiver would harm rather than help the company.
- Related findings of fiduciary breach in companion litigation did not, standing alone, justify receivership absent a showing that a receiver was necessary and likely to produce a net benefit.

## Legal Principles

- Appointment of a receiver for an insolvent Delaware corporation under 8 Del. C. § 291 is an extraordinary equitable remedy, not an automatic consequence of insolvency.
- Insolvency may be a threshold consideration, but the court must also consider whether receivership is necessary to protect the corporation and whether it is likely to preserve value rather than impair the company’s prospects.
- In determining equitable relief, the court weighs practical effects on financing, operations, and stakeholder interests; a remedy may be denied if it would predictably reduce value or impede a feasible path forward.
- Governance conflict or director misconduct may inform the court’s assessment of risk, but structural remedies still require a showing that lesser alternatives are inadequate and that the requested intervention is warranted.

## Conclusion

The Court of Chancery refused to appoint a receiver under § 291 despite acknowledged insolvency, holding that insolvency does not compel receivership and that the moving party must show the remedy is necessary and likely to benefit, not damage, the corporation and its stakeholders.


Shocking Techs., Inc. v. Kosowsky, 2012 WL 4482838 (Del. Ch. Sept. 28, 2012)