3.3.4.3 Comments

When one studies the appraisal triggers, one should bear in mind that the appraisal remedy is "an exit strategy designed to protect shareholders".1 By only including mergers and consolidations in the appraisal triggers, the Delaware's scope is too narrow to protect minority shareholders. A broad scope is, however, subject to abuse by the minority. Therefore, once again, the core question boils down to how to strike a balance between different interests. After studying the history and purpose of this remedy, it is proper to conclude that, to strike the balance, the statutory appraisal triggers should be fundamental changes to the company which affect the fundamental expectations of shareholders. As a matter of fact, all the situations I have studied above, mergers, share exchanges, dispositions of assets, and effectuations of reverse stock split are fundamental structural changes and can be taken as a appraisal trigger.

A noteworthy point is that private orderings are respected by the RMBCA and the ALI principles. But the provisions in the RMBCA and the ALI Principles actually reflect different policy considerations. In the RMBCA, the scope of explicitly listed triggers has been narrowed down by the last revision in 2005, and is narrower than that of the ALI Principles. But with a catch-all provision at the end for private ordering, it does not have a narrower scope than the ALI. This position is justified by the reluctance to make arbitrary business judgements for the corporation and respect for the true needs of the business operations and the free will of the shareholders. In contrast, the ALI employs a more minority shareholder-friendly policy. It has an expanded statutory range of categories of business combinations and charter amendments. In other words, the Principles make the appraisal more readily available to the minority shareholders. The viewpoint behind this approach is probably the justification for statutory remedies in every other case: firstly, shareholders may not foresee future situations secondly, even if they have foreseen them, the minority may not have enough negotiating power to bargain for appraisal rights. So it is gulle a recurring and typical question in dealing with the relationship between majority and minority, either to let the minority take care of themselves or lend a helping hand by way of statutory intervention, either a robust or a modest intervention, i.e., more towards the business autonomy or more to the social justice. The RMBCA takes a modest position on this, avoiding any blame for undue intervention in business management. The Principles are more willing to provide help and provide stronger support for the minority shareholders.

Since this paper examines the exit remedies in a close company, it is helpful to think about the role of the appraisal remedy to this end: whether this remedy is sufficient to solve the minority shareholders' plight of unfair lock-in in a close company. It is not difficult to see that, as an exit remedy, the appraisal remedy is not enough. This conclusion is not based on underutilization of this remedy, but on the basis of the appraisal triggers in transactions. Such a scope cannot adequately respond to the illiquidity plight of minority shareholders in close corporations where, besides fundamental changes, the wish to leave more often arises out of friction among shareholders or oppressive conduct by controlling parties, such as exclusion from the management or withholding dividends.2 This leads to the conclusion that appraisal rights, standing alone, provide inadequate exit relief to the minorities. Another remedy, the oppression remedy, which more specifically suits the needs of oppressed shareholders, will be introduced later. The next subsection is about procedural issues of the appraisal remedy.