Einde inhoudsopgave
Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/3.3.5.1.1
3.3.5.1.1 A comparative introduction
dr. Q. Wang, datum 02-05-2011
- Datum
02-05-2011
- Auteur
dr. Q. Wang
- JCDI
JCDI:ADS405260:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
Delaware courts have also admitted that 'the procedural prerequisites for an appraisal remain technical and burdensome.' Matter of Enstar Corp., 513 A.2d 206 (Del.Ch. 1986), see also Principles of Corporate Governance: Analysis and Recommendations, American Law Institute, 1994. Part VII, Chapter 4, The Appraisal Remedy, p. 293, 294; Daniel R. Fischel, The Appraisal Remedy in Corporate Law, 1983 Am. B. Found. Res. J. 875, 875-84; Robert B. Thompson, Exit, Liquidity, and Majority Rule: Appraisal's Role in Corporate Law, 84 Geo. L.J. 1, 3-5, 9-42 (1995); Barry M. Wertheimer, The Purpose of the Shareholders' Appraisal Remedy, 65 Tenn. L. Rev. 1998.
The late F. Hodge O'Neal and Robert B. Thompson, O'Neal and Thompson's Close Corporations and LLCs: Law and Practice, current through the June 2005 update, 9.5.
Delaware 262 (d), Appraisal Rights.
Official Comment in the RMBCA, Chapter 13.
Official Comment in the RMBCA, Chapter 13.
Procedures in the RMBCA briefly summarized: 1. The corporation notifies the shareholders of appraisal rights in the shareholder's meeting notice. 2. The dissenting shareholders must deliver a written notice of the shareholder's intent to demand payment by appraisal rights, such shareholders must not vote in favour of the proposed action. 3. No earlier than the date the corporate action became effective and no later than ten days after such date, the corporation must deliver a written appraisal notice together with a form, stating: (1) where the form must be sent and where certificates for certificated shares must be deposited, (2) a date by which the corporation must receive the form, (3) the corporation's estimate of the fair value of the shares, (4) the dissenting shareholder's right to withdraw. 4. The dissenting shareholders must return the form within the stipulated time and deposit shareholder's certificates. The dissenting shareholders will lose all rights as shareholders from this point. The deposit requirement prevent dissenters from selling their claims in the appraisal proceeding. 5. Within 30 days after the required form is due, the corporation shall pay in cash the fair value plus interest. The amount of payment must equal or exceed the corporation's estimate given in the appraisal notice in step 3. 6. If the dissenting shareholders are dissatisfied with the fair value estimated by the corporation, they should notify the corporation and offer a price they deem as proper. 7. If the payment demand of the previous procedure remains unsettled, within 60 days the corporation shall commence a proceeding and petition the court to determine the fair value.
The RMBCA, 13.24 (a), the Principles, 7.23.
See footnote 131 (4) and (5).
See Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1187-88 (Del. 1988).
Official comment of the RMBCA 2005, Chapter 13.
7.23 (a) (iii) of the ALI, 13.22 of the RMBCA.
7.23 of the ALI.
7.23 (f) of the ALI.
Of course, a dissenting holder would remain free to change counsel or to reject the services or lead counsel named by the court. Principles of Corporate Governance: Analysis and Recommendations, American Law Institute, 1994, part VII, Chapter 4, The Appraisal Remedy, p. 341.
It is commonly understood that procedures governing appraisal proceedings should be time—effective and less onerous than they are now.1 Complex procedures limit the effectiveness of this remedy.2 I use the appraisal procedures in the Delaware statute as a reference in this regard.3
1. Notice of appraisal rights
No less than 20 days before the shareholder meeting for approval of transactions which trigger appraisal rights, the company must notify the shareholders of the availability of appraisal rights. Such notice is necessary because many shareholders may have no knowledge of appraisal rights or do not know how to apply them.4
2. Notice of intent to demand payment
The shareholders who want appraisal rights, after getting such notice and before the vote is taken on the transaction during shareholder meeting, must demand this in writing. Such shareholders are not allowed to vote for the transaction concerned. If they vote for the transaction, they lose their appraisal rights. But they are not compelled to attend the meeting and vote against it. This notice from shareholders helps the corporation to assess how much cash may be needed to satisfy the dissenting shareholders.5
3. Notice of appraisal
If the transactions are approved, within 10 days of approval, the corporation shall notify the dissenting shareholders of the result, and also inform them that appraisal rights are available.
4. Perfection of rights
Any shareholder entitled to appraisal rights may, within 20 days of the date on which such notice is sent, demand in writing from the surviving or resulting corporation the appraisal of said holder's shares.
5. Judicial appraisal of shares
Lastly, if no agreement has been reached between the corporation and dissenting shareholders on the fair value of the shares within 120 days of the effective date of the transaction, either party can petition the Delaware court.
The RMBCA and the Principles have mainly the same procedures.6
Yet, a few noteworthy differences exist.
In the RMBCA and the Principles, the striking aspect is the prepayment requirement. The corporation must pay the dissenters in cash the amount it estimates as fair value, plus interest, within a limited period of time, without waiting for the conclusion of the appraisal proceeding.7 In the RMBCA, this period is 30 days from the second appraisal notice.8 An appraisal proceeding usually lasts for a long time owing to the complexity of the procedures and the complicated nature valuation.9 Dissenters may therefore have to wait for a long time before they can get their investment back. This problem, fortunately, has been mitigated by the prepayment requirement which posits that "difference of opinion over the total amount to be paid should not delay payment of the amount that is undisputed."10
The merit of the Principles and the RMBCA is also represented by the provision of more information to dissenting shareholders. The corporation is required to disclose material facts concerning the transaction or other action and furnish copies of the corporation's financial statements in its notice to shareholders.11
One more desirable point of the ALI Principles is the promotion of coordination among dissenting shareholders.12 During the litigation, the corporation must provide a list of names and addresses of all dissenting holders to the court and the list, subject to appropriate restrictions, must be available for inspection by all dissenting holders and their agents.13 The court will also appoint a lead counsel or steering committee to coordinate the trial of the proceeding and to represent any dissenting holders who have not secured other counsel.14 In sum, the Principles and the RMBCA can be helpful examples to follow when states plan to revise their appraisal statute.