3.3.0 Introduction

The appraisal remedy gives shareholders who are opposed to certain corporate actions, such as mergers or sales of assets, an opportunity to have their shares repurchased by the corporation at an appraised value and afterwards exit the company.1 Owing to procedural and substantive obstacles, this remedy was infrequently used.2 Recent practice in the US, however, shows a revival of this remedy. Several reasons have been identified to explain this intensified interest. Primarily mergers, which are one of the main events triggering appraisal rights, have increased dramatically in the last three decades.3 The appraisal remedy is more frequently invoked now than ever before. Procedures for applying the appraisal remedy have been simplified and modernized as well. For example, the RMBCA requires prepayment of fair value to dissident shareholders by the corporation.4 Thirdly, with valuation methods applied before the Weinberger case, shares of dissenters were subject to a substantial onder-valuation, which is a major cause of the dearth of appraisal proceedings.5 Since the judgment in the Weinberger case,6 courts have modernized their valuation methods and have brought them closer to the current practice in the financial world.7 Shareholders are now more likely to achieve positive results. Although there are still impediments to a widespread use of this remedy, with all the above elements combined, the appraisal remedy has become increasingly important when dissatisfied shareholders consider their remedy options. As a result, we see that the number of reported appraisal decisions has increased greatly and a renewed interest in studying this remedy has also arisen.8

A few lines of digression here. The appraisal remedy has been in use in America for more than a hundred years, whereas in China this remedy did not come into existence for a close company until the advent of the new PRC company law in 2006. In contrast to an entire chapter for appraisal rights in the RMBCA (Chapter 13), this new company law has only one article on the appraisal remedy. So the study of appraisal rights in this section will surely benefit the development of appraisal rights in China. Chinese legislators, in their future legislation revisions, will be able to deliberate more intensely on issues that have been discussed in the US.

This chapter briefly recounts the history of the appraisal remedy, and then examines the historical and recent purpose of this remedy. It also discusses the grounds and procedural issues with reference to the RMBCA, the Delaware corporate statute, and the ALI Principles.