In re: Prenexus Health, Inc., Assignor, to Alliance Management, LLC

• Court: Court of Chancery of Delaware
• Decided: February 22, 2023
• Docket: C.A. No. 2022-1071-PAF
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE PAUL A. FIORAVANTI, JR. LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734 February 22, 2023

Jeremy W. Ryan, Esquire Andrew L. Brown, Esquire Potter Anderson & Corroon LLP 1313 N. Market Street, Sixth Floor Wilmington, Delaware 19801

Re: In re Prenexus Health, Inc., C.A. No. 2022-1071-PAF Dear Counsel:

This letter resolves the Motion to Waive the Appraisal Requirement of

10 Del. C. § 7382 and Approving Bond Without Surety in Satisfaction of

10 Del. C. § 7383 (the “Motion”). For the reasons explained below, the Motion is

denied.1

Prenexus Health, Inc. (the “Assignor”), is a Delaware corporation with a

principal place of business in Arizona. The Assignor was in the business of

producing probiotic ingredients for the food and dietary supplement industry. On

November 22, 2022, the Assignor assigned all its rights, title, and interest in all

remaining assets to Alliance Management, LLC (the “Assignee”). The next day, the

1 Citations to the docket in this action will be in the form of “Dkt. [#].” In re Prenexus Health, Inc. C.A. No. 2022-1071-PAF February 22, 2023 Page 2

Assignee filed its petition for the assignment for the benefit of creditors (the

“Petition”).

Under the assignment statute, an assignee is required to file an affidavit of

inventory within 30 days of the date of the assignment. 10 Del. C. § 7381. In

accordance with the assignment statute, on December 13, 2022, the court entered an

order directing the Assignee to file an affidavit of inventory within 30 days of the

date of the assignment pursuant to 10 Del. C. § 7381. Consistent with the statutory

regime, the order further provided:

The assignee is directed to submit a motion for the appointment of appraisers within 30 days after the filing of the inventory, which shall include proposed dates for the filing of the appraisals and the application to approve a bond under 10 Del. C. Sections 7382 and 7383, respectively. Annual accountings shall be filed as required by 10 Del. C. Section 7385.2

On December 22, 2022, the Assignee filed an affidavit of inventory as required by

Section 7381 and the court’s December 13 order. 3 Thus, under the court’s December

13, 2022, order, a motion for the appointment of appraisers was due to be filed on or

before January 23, 2023. The Assignee, however, did not file a motion for the

appointment of appraisers. Rather, on January 23, 2023, the Assignee filed the

2 Dkt. 3. 3 Dkt. 4. In re Prenexus Health, Inc. C.A. No. 2022-1071-PAF February 22, 2023 Page 3

Motion, which seeks a waiver of the statutory requirement for the appointment of

appraisers.4 The Motion also seeks the approval of an unsecured bond.

In support of the Motion, the Assignee argues that the appraisal requirement

should be waived because the “[i]nventory consists of cash and equipment” and the

Assignee is running a sale process on the equipment, making an “appraisal

unnecessary and wasteful.” Mot. ¶ 9. The Assignee points to one opinion and

several orders of this court waiving the appraisal and bond requirements or excusing

the requirement that a bond be secured. Mot. ¶ 13. Those decisions are not

analogous to the circumstances of this case and do not support the relief sought in

the Motion.

Section 7382 of the assignment statute provides that “[u]pon the filing of the

inventory and affidavit required by § 7381 of this title, the Court of Chancery shall

appoint 2 disinterested and competent persons to appraise the estate assigned.”

10 Del. C. § 7382 (emphasis added). In addition, Section 7383 provides that the

“assignee shall . . . give bond with sufficient surety . . . being not less than the total

amount of inventory and appraisement of the estate.” 10 Del. C. § 7383 (emphasis

added). The statute’s use of the term “shall” with respect to appointing appraisers

4 Dkt. 5. In re Prenexus Health, Inc. C.A. No. 2022-1071-PAF February 22, 2023 Page 4

and requiring a bond reflects that those provisions are mandatory. See In re: Weaver

Hldg. Co., 2011 WL 5910707, at *1 (Del. Ch. Nov. 28, 2011); see also Elliott v.

Montell, 30 A. 854, 855 (Del. 1885) (“[W]hen a voluntary assignment is made,

certain things must be done as . . . specified [in the statute].”). Although the court

has waived the appraisal requirement on occasion, an assignee seeking a waiver must

demonstrate good cause. See Weaver, 2011 WL 5910707, at *1 (waiving the

appraisal requirement where the assignor’s assets consisted of unliquidated stock of

nominal value, accounts receivable, and cash on condition that the assignor’s sole

known creditor submit an affidavit waiving its right to an appraisal). But see In re

Ohana Biosciences, Inc., C.A. No. 2021-0515-PAF (Del. Ch. Nov. 15, 2021)

(ORDER) (denying a motion to waive the appraisal requirement of Section 7382

where the inventory consisted of more than just cash and receivables).

As Weaver and Ohana recognized, the court has occasionally waived the

appraisal requirement upon a showing of good cause where the assigned assets

consist of cash, accounts receivable, and assets of nominal value. Every uncontested

order that the Assignee has cited in support of waiving the appraisal requirement

involved like circumstances. See Mot. ¶ 13 (citing In re Creditors Interchange

Receivable Mgmt., LLC, C.A. No. 7979-CS (Del. Ch. Mar. 14, 2013) (ORDER)

(waiving the appraisal requirement where assets consisted “primarily of cash . . . In re Prenexus Health, Inc. C.A. No. 2022-1071-PAF February 22, 2023 Page 5

along with a limited amount of accounts receivable and miscellaneous equipment of

nominal value”); 5 In re TSHS, LLC, C.A. No. 6288-VCN (Del. Ch. Oct. 18, 2011)

(ORDER) (waiving the appraisal requirement where inventory “consist[ed]

exclusively of cash . . . with a limited amount of accounts receivable”); 6 In re U.F.

Hldgs., Inc., C.A. No. 1504-VCP (Del. Ch. Aug. 25, 2005) (ORDER) (waiving the

appraisal requirement where assets consisted of sale proceeds, contingent rights to

receive proceeds from a letter of credit, miscellaneous prepaid insurance and

retainers, and ownership in subsidiaries); 7 In re: Techsmart.com, Inc., C.A. No. 264-

VCN (Del. Ch. Apr. 16, 2004) (ORDER) (waiving the appraisal requirement where

the assets “consist[ed] of cash, cash equivalents and a deposit”)). 8

Unlike in the foregoing cases, the assigned assets here are not solely cash and

receivables. According to the Assignee’s affidavit of inventory, the assets include

manufacturing plant, lab, and farm equipment with an estimated book value of over

$4.1 million. Dkt. 4 Ex. A. The Assignee also avers that the inventory includes

intellectual property of unknown value. Id. Thus, waiver of the statutory

5 See C.A. No. 7979-CS (Dkt. 6) ¶ 8. 6 See C.A. No. 6288-VCN (Dkt. 5) ¶ 8. 7 See C.A. No. 1504-VCP (Dkt. 2) Ex. A. 8 See C.A. No. 264-VCN (Dkt. 5) ¶ 4. In re Prenexus Health, Inc. C.A. No. 2022-1071-PAF February 22, 2023 Page 6

requirement is not permitted. “The statute must be read in the light of the purpose

for which it was enacted, to wit, the security afforded both to the cestui que trust and

the assignor by the bond of the trustees, the inventory and appraisement, and the

supervisory rule of the chancellor.” Elliott, 30 A. at 855–56. Under the

circumstances presented here, the Assignee has not established good cause for

waiving the appraisal requirement or its failure to comply with the court’s December

13, 2022, order.

The Motion’s request for an unsecured bond is unsupported. The assignee has

not demonstrated good cause to warrant an unsecured bond. In Weaver, where the

assets consisted of cash, accounts receivable, and stock of minimal value, the court

permitted an unsecured bond upon the filing of an affidavit by the sole known

creditor entitled to the assignor’s assets waiving its right to a secured bond. 2011

WL 5910707, at *1. The assets here are not solely cash and receivables, and there

is no affidavit of a sole creditor waiving the right to a secured bond. Accordingly,

the request for an unsecured bond is denied. See Dillon Fleet Servs., Inc. C.A. No.

2021-0785-PAF (Del. Ch. Nov. 15, 2021) (ORDER) (denying a request for

unsecured bond where assets did not consist solely of cash and receivables).

A motion for appointment of appraisers shall be filed within five days. In re Prenexus Health, Inc. C.A. No. 2022-1071-PAF February 22, 2023 Page 7

IT IS SO ORDERED.

Very truly yours,

/s/ Paul A. Fioravanti, Jr.

Vice Chancellor