1.2.1 The appraisal remedy

In statutes, it is normally possible for shareholders to exit either through the dissolution remedy or a judicial buyout enforced by the company or by other shareholders. The exit remedies studied in this research are limited to those which enable a way out of the company through a buyout; exit through dissolution is not included. The exit remedies included in this research are the appraisal remedy, and the oppression remedy in the US, whose counterpart is the unfair prejudice remedy in the UK.

The appraisal remedy provides shareholders who are opposed to certain corporate actions, such as mergers or sales of major assets, with a chance to have their shares repurchased by the company at an appraised value and afterwards exit the company.1

The appraisal remedy originated in the US. Traditionally, the unanimous consent of shareholders was required in relation to major changes in the corporation, such as major assets sales, charter amendments and consolidations.2 All shareholders had to agree upon such changes before they could be enforced because these changes considerably affected the shareholders' expectations of how the business should have been operated.3 The unanimous consent rule, however, seriously impeded corporate development by hindering business restructuring, blocking expansion into new business fields and deterring quick reactions to business opportunities.4 As a result, statutes finally granted wide powers to the majority shareholders to decide upon assets sales, charter amendments, consolidation schemes, etc.5 Unless properly counterbalanced, such majority control would jeopardize the interests of minority shareholders.6 The introduction of majority rule thus gave rise to the appraisal remedy. The purpose of this remedy is to balance the conflict between corporate needs for structural and fundamental changes in response to the market and the original investment expectations of minority shareholders. If they dissent from the corporate changes, the minority shareholders can apply for this remedy so as to leave the company with the fair value of their shares. Important issues for exploration then arise: grounds for application and valuation practice to achieve fair value.