The Delaware Court of Chancery recently held in In re Reinz Wisconsin Gasket, LLC, C.A. No. 2022-0859-MTZ (Del. Ch. May 8, 2023), that a canceled limited liability company (LLC) could not be represented by counsel in a legal proceeding unless a receiver was first appointed. In this case, counsel for the defunct LLC argued against the appointment of a receiver and against the nullification of the LLC’s certificate of cancellation.

Reinz Wisconsin Gasket, LLC (RWG), the Delaware LLC at-issue in this case, was a defendant in a tort action in the U.S. District Court for the District of Massachusetts. After the case commenced, RWG was canceled under Delaware law. Following that cancellation, the District of Massachusetts concluded that RWG no longer existed and granted its counsel’s motion to withdraw from the federal tort case. Linda A. Cook, an adverse party in the federal litigation, then moved for default judgment against RWG in the federal case because “it was unrepresented by counsel and could not represent itself.”

In addition to the motion for default judgment, Cook filed a petition in the Delaware Court of Chancery seeking the appointment of a receiver and to nullify RWG’s certificate of cancellation. 

The Court explained that Delaware’s Limited Liability Company Act provides that a company’s existence “as a separate legal entity shall continue until cancellation of the limited liability company’s certificate of formation.” However, once an entity is canceled, its legal existence ends. The Court also explained that a defunct company may only speak through a receiver to manage litigation or other outstanding business. Therefore, “the receiver is appointed because there are no other fiduciaries to make decisions for the entity.” RWG's counsel pointed out that defunct entities had been represented by counsel in prior Court of Chancery cases. The Court dismissed this argument and stated, “[t]hat something has happened before without being identified as a problem does not make it legally correct, particularly where neither case specifically discussed the entry of appearance and where counsel spoke on behalf of viable litigants as well as the defunct entity.”

This case is a useful reminder that once an LLC is canceled, its existence as a separate legal entity ceases and there is little an LLC can do once canceled, including opposing the appointment of a receiver or retaining counsel.