Delaware’s Chancery Court is loath to unscramble the eggs, rescission of complicated corporate transactions often being “too involved to undo.” 1 Rather than sort out the tax ramifications, accounting issues, and structural consequences of nullifying a deal, monetary relief is the Chancery Court’s favored form of compensating shareholders frozen out of a merger or otherwise injured by a transaction in breach of the entire fairness standard or the fiduciary duties of loyalty and good-faith.
Still, money damages, which can be difficult to prove, need not be an inevitability. Ramadurgam v. Destiny XYZ Inc. 2 is a recent illustration of the alternative middle ground. There the Chancery Court crafted a remedy that restored a co-founding shareholder to his pre-transaction status quo without voiding the unlawful deal.
The Breach
Destiny XYZ was borne out of a controlling shareholder’s “clandestine scheme” 3 to oust his co-founding minority by stacking the board with his friends so they could ram through and rubber stamp a reverse-forward stock split that cashed out the fractional shareholders, including the minority co-founder, at a low-balled valuation. The scheme was effectuated by the controller secretly engaging a law firm, which in turn covertly engaged a valuation firm, to prepare a valuation of the company’s shares that was “not intended to be, and will not constitute, a fairness opinion,” 4 as stated in the engagement letter between the law firm and valuation firm. Once the stock split was consummated, and the fractional shareholders cashed out based on the commissioned valuation, the minority co-founder’s 36.5 percent equity stake was wiped out for a price of $710,000, which the controller ironically claimed was fair value while at the same time telling the court he was willing to pay the minority $10,200,000 to settle the matter. The controller and his board appointees justified the transaction as simply a mechanism for eliminating “dead equity” 5 – i.e. the minority co-founder who they claimed was no longer contributing to the company – by “clean[ing] up the cap table.” 6
The Chancery Court deemed it a squeeze-out, failing the entire fairness standard and breaching the controller’s fiduciary duty of loyalty. The ruling hinged on the process vacuum in approving the reverse stock split and on the unfair price at which the minority was cashed out. The court pointed to the downward engineered valuation, its lack of credibility evident from the heavy reliance on information supplied by the controller that was not tested or independently verified by the valuation firm. The court further cited the controller’s keeping the minority co-founder in the dark, allowing him just fifteen minutes to review the valuation and directing him not to ask questions at the special meeting to approve the reverse stock split. The deliberate shutdown of the minority’s voice was amplified by the willful blindness of the controller’s board appointees, none of whom bothered to make inquiries or undertake any review of the transaction. And, as
reflective of both an infected process and valuation, the court considered it significant that the stock split was strategically timed to take place shortly before the public listing of the company’s first fund product, a milestone that the two co-founders agreed would positively affect the company’s value. Taken together, none of this passed muster under the fair price and fair dealing prongs of the entire fairness test, on top of being a fiduciary violation.
The Remedy
Having found liability, the issue became the appropriate form of relief. The court determined a restitutionary remedy was necessary given the extent of the fiduciary breach. However, this did not mean cancelling the transaction. Instead, the court devised a remedy that put the co-founder back in his original proportionate equity position without undoing the reverse stock split.
The chosen remedy was a constructive trust because it “avoids the overbreadth of rescission and the inadequacy of money damages.” 7 A constructive trust was imposed over the controller’s ownership interest in the company that was traceable to the equity the minority would have retained if not for the reverse stock split. The minority’s pre-transaction 36.5 percent equity interest was an identifiable benefit that the controller had seized from him through the stock split. The court believed the loss of this interest could not be adequately compensated with money damages. However, rescission of the transaction was not viable because there had been subsequent equity grants, option exercises, and other changes to the company’s capitalization. In short, the aftermath of the deal had become “too involved to undo.” 8 A constructive trust was the solution for restoring the minority to his 36.5 percent equity stake while preserving the transaction along with the possibility of future equity grants to others.
Adding to this relief, the court also awarded the minority his attorneys’ fees pursuant to the bad-faith exception to the American Rule, under which parties are typically each responsible for their legal fees regardless of outcome. Recognizing the exceptional nature of this remedy, the court viewed the case as not an “ordinary fiduciary breach,” 9 the conduct of the controller and his board appointees being “glaringly egregious” and “unusually deplorable.” 10 This was sufficient to overcome the American Rule and order the controller to pay his co-founder’s legal fees.
A similar restitutionary remedy was awarded by the Chancery Court in Neem Int'l CV v. Shulman. 11 There a controlling shareholder orchestrated a Uniform Commercial Code (UCC) Article 9 sale so he could divert company assets to himself through a credit bid based on unauthorized debt, thereby violating the liquidation rights bestowed upon the preferred stockholders under the certificate of incorporation. The court held this a violation of the controller’s fiduciary duty of loyalty, stating “Delaware law does not permit fiduciaries to exploit
corporate processes to render contractual stockholder protections illusory.” 12 To restore the benefit of the preferred stockholders’ liquidation rights, the court first recharacterized the controller’s advances to the company as equity, as opposed to debt which had not been authorized by the board. On account of the recharacterization, the controller no longer enjoyed credit priority over the preferred shares, which then allowed the court to order distribution of the value of the asserts he received from the Article 9 sale to satisfy the preferred shareholders’ liquidation preference. The preferred shareholders were thus restored a benefit misappropriated by the controller, but the Article 9 sale was not rescinded. Notably, like the court in Destiny XYZ, the court in Neem also ordered the controller to pay the preferred stockholders’ attorneys’ fees, holding in a post-trial decision that the controller’s conduct manifested “extreme disloyalty,” warranting resort to the bad faith exception. 13
As the Chancery Court put it in Destiny XYZ, “rescission and restitution often appear together because unwinding a transaction may require each side to return what it received. But they are not the same remedy. Rescission avoids the transaction, whereas restitution restores the benefit.” 14 That crucial distinction is what enables a court seeking a compromise between money damages and nullification to pinpoint the benefit retained by the wrongdoer and design a targeted remedy that returns that benefit to the injured shareholder.
The Upshot
The Chancery Court is not constrained in the remedies it fashions; practitioners, too, need not be constrained in the relief they seek from it. Constructive trust and satisfaction of a liquidation preference are only some of the options that squeezed out shareholders can present to the court. Disgorgement of financial gains or an accounting are others. Equitable relief is a spectrum, Destiny XYZ and Neem serving as examples of how parties can be restored a transaction’s benefits, or returned to their pre-transaction status, without unscrambling the eggs.
1 Weinberger v. Uop, 457 A.2d 701, 714 (Del. 1983).
2 2026 Del. Ch. LEXIS 307 (Del. Ch. July 23, 2026).
3 Id. at *1.
4 Id. at *15.
5 Id. at *17, 65.
6 Id.
7 Id. at *72.
8 Id. at *69 (citing Weinberger v. Uop, 457 A.2d at 714).
9 Id. at *75.
10 Id. at *75, 79.
11 2025 Del. Ch. LEXIS 2076 (Del. Ch. Dec. 31, 2025).
12 Id. at *51.
13 Neem Int'l CV v. Shulman, 2026 Del. Ch. LEXIS 315, at *4 (Del. Ch. July 30, 2026).
14 2026 Del. Ch. LEXIS 307, at *69.