Einde inhoudsopgave
Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/3.4.5.3
3.4.5.3 Discount
dr. Q. Wang, datum 02-05-2011
- Datum
02-05-2011
- Auteur
dr. Q. Wang
- JCDI
JCDI:ADS405250:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
A California decision, however, suggested that in a converse situation where a court orders the buyout of a controlling interest, a control premium should be added in fixing the transfer price. See Ronald v. 4-C'S Electronic Packaging, Inc., 168 Cal. App. 3d 290, 214 Cal. Rptr. 225 (2d Dist. 1985).
Melvin Aron Eisenberg, op cit., p. 476.
Brown v. allied corrugated box co., 91 CaL App. 3d 477, 154 CaL Rptr. 170 992d Dist. 1979.
The late F. Hodge O'Neal and Robert B. Thompson, op cit., current through the June 2005 update, s. 9.32.
Frienman v. Beway Realty Corp., 87 N.Y. 2d 161, 638 N.Y. S. 2d 399, 661 N.E. 2d 972, 1995.
Columbia Management Co. v. Wyss, 94 Or. App. 195, 765 p. 2d 207 1988. Laserage Technology Corp. v. Laserage Laboratories, Inc., 972 F. 2d 799 (7th Cir. 1992) (no minority discount is supported when the majority shareholder is the purchaser); Institutional Equipment & Interiors, Inc. v. Hughes, 204 III. App. 3d 922, 150 III. Dec. 132, 562 N.E.2d 662 (2d Dist. 1990) (minority discount is not applicable where the dissenting shareholders are bought out by the majority);
In re Bird Precision Bellows Ltd., Ch.419, 430 1984, aff'd, 2 W.L. R. 158 1986.
Charles W. Murdock, op cit., p. 43.
The last point to mention in this subsection is the discount issue. No discount, owing either to a problem with market availability or a minority status, is recommended in a valuation process in the appraisal remedy. Nor are such discounts recommended in the oppression remedy.1 In general, five reasons are summarized.
To start with, Delaware court characterizes a discount imposed on the minority shareholders' shares as a windfall to the majority.2 It is against common sense to allow the majority to oppress the minority, force them out, and at the same time benefit themselves by paying less for what is due.3 Most of the courts in the US therefore take the same position on this issue that a minority discount should not be applied in a buyout in this case.4 On the one hand, discounts may double the grief suffered by the minority, and on the other, the unfair benefits resulting from the discount would create an incentive for misconduct by the majority.5 Nor is it logical to discriminate against minority shares which after having been purchased by the majority or by the corporation would be not disadvantaged minority shares anymore, but become normal or even majority shares.6 Furthermore, in the event of dissolution, assets are divided equally per share. So if alternative remedies are applied, minority shareholders should not lose more. Regarding a marketability discount, however, I agree with ALI that in some extraordinarily circumstances, such as financial difficulty of the company or actual inability to find a buyer, discount could be allowed in that without a marketability discount under this circumstance, it may result in exploitation by the minority of the majority. Finally, it has been pointed out that a forced buyout created by the majority would deny the minority shareholders a possible more advantageous sale in the future. It is unfair to ask for a discount when a minority shareholder is forced to give up a free choice of when to sell his shares.7 Minority shareholders suffer the so called opportunity cost.8
All in all, it is not suitable to apply a discount in this remedy when assessing the value of the minority's shares.