(CN) - A Delaware judge ordered Phixios Holdings to allow a shareholder to inspect its books and records, after ruling that the shareholder's interest could not be rescinded based on his efforts to compete with the company.
Jon Henry seeks to inspect Phixios' records as part of an investigation into mismanagement at the IT monitoring software company.
Phixios denied the request, however, because it revoked Henry's shares for violating the restriction that shareholders not engage in any competition with the company.
Henry asserts that he was unaware of this restriction, which is not noted on any stock certificate.
After holding a half-day trial on the matter, the Delaware Chancery Court ruled against Phixios.
"I find that the plaintiff stockholder did not have actual knowledge of the restrictions prior to acquiring his stock," Vice-Chancellor Tamika Montgomery-Reeves said. "Although the plaintiff stockholder may have received knowledge after he was granted stock, he did not assent to be bound by the restrictions. Therefore, the company could not rescind his stock under the bylaws, and he remains a stockholder of the company."
Further, the judge said Henry presented plausible evidence of mismanagement at Phixios, especially given the company's precarious financial condition.
At trial, Phixios' COO admitted in court to using corporate funds for personal expenses, including iTunes purchases and various restaurant bills.
"These allegations are sufficient to establish a credible basis from which the Court of Chancery can infer there is possible mismanagement that would warrant further investigation," Montgomery-Reeves concluded.