The Case of the One-Dollar Buyout
Under New York’s statute governing corporate dissolution petitions by oppressed minority shareholders, the remaining shareholders may avoid dissolution by electing to purchase the petitioner’s shares for fair value. (View the buyout statute, Section 1118 of the Business Corporation Law). I recently got a call from someone deciding whether to make the election, asking if it’s possible for a court to assign a zero value to the petitioner’s shares. The practical side of my brain responded, If the business has no value, why are both sides spending legal fees fighting over a corpse?
In law as in life, however, the practical answer does not always carry the day. It is not unusual for one business owner (i.e., the purchaser) to see a sow’s ear where the other owner (i.e., the seller) sees a silk purse. There is nothing in the buyout statute or case precedent that precludes a court from deciding that the petitioner’s shares are worthless. In one recent decision in a valuation proceeding, the court ordered the petitioner to deliver his shares to the purchasing shareholder for a symbolic $1.00 payment. The court credited the opinion of the purchaser’s expert appraiser, who testified that the shares had no positive value based on the company’s debt, its continuing losses and the short remaining term of its lease. The petitioner appears to have sealed his own fate by failing to offer his own appraiser. Worse yet, the court also denied the petitioner’s application to remove his surname from the company’s name. A very painful dollar to accept, indeed.
The case, Matter of Giraud, 2007 NY Slip Op 32473 (U) (Sup Ct NY County Aug. 3, 2007), was decided by Justice Lewis Bart Stone of the New York County Supreme Court.
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