Chancery Court OKs Dissolution Of Deadlocked Companies Under §273

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By Michael Greene

Feb. 10 — In a Feb. 9 ruling, the Delaware Chancery Court granted a petition for dissolution pursuant to DGCL §273 because two 50 percent stockholders had reached an impasse and were unable to agree whether to continue their joint ventures or dispose of its assets.

Citing earlier precedent, Vice Chancellor J. Travis Laster explained that 8 Del. C. §273 exists to bring closure to “inefficient and unworkable relationships” and thus requires the court to dissolve corporations where deadlock exists.

“It does not mandate that parties struggle until they have destroyed their relationship entirely and jeopardized their business,” he opined.

‘Extended Suffering' Not Required

The two Delaware corporations involved were general partners of limited partnerships that managed real estate properties. The corporations were owned by two 50 percent stockholders.

After a deadlock arose over the future direction of the partnerships, one of the 50 percent stockholders filed a petition to dissolve the general partners pursuant to § 273.

Vice Chancellor Laster noted that §273 grants the court the power to dissolve corporations with two 50 percent stockholders and that the power to deny a petition that satisfies the statute's minimum standards “should be sparingly exercised.”

Thus, the sole issue for the court to determine “is limited to a determination of whether or not a bona fide inability to agree exists between the two shareholders,” he added.

In rejecting an argument that the dispute had not lasted long enough to warrant dissolution, Vice Chancellor Laster opined that statute “does not require extended suffering.”

Because the parties had reached a deadlock and could not agree upon whether to discontinue the business or how to dispose of it, the court granted the petition for dissolution.

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