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Court Of Chancery Issues First Decision Interpreting Amended Section 220 And Grants Books And Records Inspection On Default
01/21/2026On December 22, 2025, Magistrate Christian Douglas Wright of the Delaware Court of Chancery granted default judgment in a books and records action brought by the Company’s former CEO and largest stockholder. Moran v. Unation, C.A. No. 2025-0718-CDW (Del. Ch. Dec. 22, 2025). The stockholders sought books and records to investigate potential waste and mismanagement by the board and to value his holdings after allegedly being walled off from financial and governance information. After the Company failed to appear, the Court held the Company in default, credited all of plaintiff’s allegations as true, and found that the books and records demand complied with the newly amended Section 220 of the Delaware General Corporation Law (“Section 220”). In so doing, Magistrate Wright became the first Delaware judge to interpret the amendments to Section 220, which he described as having “substantially revise[d] the entire process—including litigation—for stockholder demands to inspect and copy a corporation’s records”, and acknowledged that they “impact the scope of the relief the court can grant for any books and records request.”
The Court concluded that petitioner met Section 220’s requirements to demand production of the nine categories of statutorily defined “books and records”, finding that (i) the demand was made in good faith and for a “proper purpose”; (ii) the demand described with “reasonable particularity” the purpose of the inspection and the books and records sought; and (iii) the stockholder demonstrated that the requested materials were “specifically related” to the stated purpose. Observing that these requirements “do[] not impose a high threshold”, the Court held that the “reasonable particularity” standard is met if “a demand enables the receiving corporation to understand why the stockholder seeks inspection and what sort of documents it needs to look for.” The Court interpreted the “specifically related” requirement as wholly consistent with longstanding Delaware law, meaning that the requested records must be “essential and sufficient” to the stockholder’s purpose.
The Court then turned to whether the stockholder had met the “heavier burden” of demonstrating a “compelling need” to access books and records beyond the statutorily permitted categories, noting the challenges presented by the company’s refusal to appear. Plaintiff sought under Section 220(f) documents that were the “functional equivalent” of (i) stockholder meeting minutes, (ii) board and committee minutes, and (iii) annual financial statements. Plaintiff also sought these additional categories of documents, and a fourth year of audited financials, under Section 220(g).
The Court observed that the amended statute “forbids the court” from “order[ing] the production of [] functional equivalents” if the statutorily defined books and records exist. Crediting the stockholder’s allegations that he was prevented access to governance and financial records, the Court inferred that it was plausible the records did not exist and ordered production of their functional equivalents. The Court ruled that a document is a functional equivalent if it “(1) contains or conveys, alone or combined with other documents, substantially the same information . . . and (2) would enable a reasonable individual . . . to learn substantially the same things, come to substantially the same conclusions, or draw substantially the same inferences . . . .” The Court concluded that cap tables, tax returns, information used to support corporate valuations over the past two years, and records pertaining to an allegedly undervalued equity offering were the functional equivalent of audited financial statements after comparing the components of audited financials to the requested documents.
Finally, the Court concluded that plaintiff was entitled to inspect the additional requested documents and the fourth year of audited financials under Section 220(g). The Court described section (g) of Section 220 as a “safety valve” to permit inspection of non-statutorily permitted records upon a “clear and convincing” showing of a “compelling need”, and that such specific records are “necessary and essential” to the stockholder’s purpose. The Court described “clear and convincing evidence” as “highly probable, reasonably certain, and free from serious doubt.” The construed “compelling need” to mean records pivotal to the purpose and not obtainable from Section 220(a)(1) materials, and it interpreted “specific records” to codify the traditional requirement of “rifled precision” in a books and records demand. The Court also relied on longstanding Delaware caselaw to interpret “necessary and essential” as “address[ed] to the ‘crux of the shareholder’s purpose’ and . . . ‘unavailable from another source.’” Accordingly, the Court ordered defendant’s production of nearly all requested records and required production of functional equivalents where core records did not exist.
