We call it deadlock dissolution when a 50% shareholder of a close corporation, who claims to be at an impasse with the other 50% shareholder, asks the court to dissolve and liquidate the corporation. New York’s deadlock dissolution statute, unlike its statutory cousin for minority shareholder oppression petitions, does not give the non-petitioning 50% shareholder the right to avoid dissolution by acquiring the petitioner’s shares for “fair value” as determined by the court, nor do the courts have statutory or common-law authority to compel a buyout. Absent a settlement, the litigation outcomes are binary: either dissolution is granted, in which case the court usually will appoint a receiver to sell the corporation’s assets, or it’s denied, in which case the co-owners continue indefinitely their fractious co-existence.
There’s one particular subspecies of deadlock dissolution that may not be motivated primarily by the usual disputes over finance, personnel, owner compensation, budget, distributions, or other such operational issues. Rather, sometimes a deadlock dissolution petition is brought when the two owners disagree whether to dissolve or continue to operate a functioning business. The petitioner may need the liquidity for unrelated financial reasons, or in contemplation of retirement, or because he or she believes the optimal time to sell the business or its assets is at hand. Perhaps the two owners also discussed a buyout but couldn’t agree on terms. Over time, as resentments fester and pressures grow, one or both owners typically undertake unilateral actions affecting the business, or block management actions advanced by the other, that push the standoff to crisis mode and into the hands of lawyers and judges.
A recent decision by Manhattan Commercial Division Justice Saliann Scarpulla shows how a deadlock dissolution petition of this existential sort can play out. Continue Reading One 50% Shareholder Wants to Sell or Liquidate the Business. The Other Wants to Keep It Going. Is That Deadlock?