In a prior post, we discussed the standards required to obtain relief under Section 273 of the Delaware General Corporation Law (“DGCL”), i.e. (i) that a Delaware corporation has two 50/50 stockholders, (ii) that the company is engaged in a joint venture, and (iii) the 50/50 stockholders are unable to agree as to whether to discontinue the company.
But upon showing these elements, will the Court automatically grant dissolution of the entity?
The text of DGCL Section 273 states that the Court “may” dissolve the corporation and wind up its affairs when the requirements of the statute are met. Case law has held that when a petitioner has satisfied each of these elements, the Court’s discretion to deny the petition is “sparingly exercised.” In re McKinney-Ringham Corp., 1998 Del. Ch. LEXIS 34, at *16 (Del. Ch. Feb. 25, 1998).
But other remedies may be granted by the Delaware Court of Chancery. For example, the Court has interpreted the permissive “may” language of Section 273 to give it authority to grant relief other than dissolution.
For example, in Fulk v. Washington Service Assoc., Inc., C.A. No. 17747-VCJ (Del. Ch. June 21, 2002), the Court of Chancery entered an order granting a custodian’s plan to sell the joint venture to either stockholder, instead of granting dissolution. In that decision, the Court stated “the statute permits the Court flexibility in deciding how the joint venture should be discontinued[.]” As demonstrated by Fulk, a sale of one stockholder’s interest to another is not uncommonly granted, especially if the corporation can be continued as a going concern.
Accordingly, the Court in a DGCL Section 273 action has broad discretion to determine the appropriate measure of relief, and may grant relief other than the dissolution of the joint venture under the statute.
Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.