Delaware law allows for a summary proceeding to seek a quick business divorce in certain circumstances. Section 273 of the Delaware General Corporation Law (DGCL) allows for, in essence, a no-fault business divorce if the criteria of the statute are met. Those requirements are that: (i) there are two 50/50 stockholders; (ii) they must be engaged in a joint venture; and (iii) they must be unable to agree upon whether to discontinue the business or how to dispose of its assets. If those prerequisites are met, one of the 50% stockholders can file a petition to dissolve the corporation and request the appointment of a receiver. If the opposing party cannot agree within three months to a plan of dissolution, the court may then take action to appoint a receiver to oversee the dissolution.

Feldman v. YIDL Trust, C.A. No. 2017-0253-AGB (Del. Ch., Mar. 5, 2018), adds to the relatively modest body of case law interpreting Section 273, compared to other sections of the DGCL, but this recent decision of the Court of Chancery provides a helpful addition to this niche of Delaware jurisprudence and explains a set of circumstances that will satisfy the statutory prerequisites for this type of business divorce. As the court instructed:

“The purpose of the statute is to afford relief where the corporation’s two equal shareholders are deadlocked and cannot agree upon whether the joint venture should be continued and how the corporation’s assets should be disposed of.”28 “[W]hile Section 273 recognizes a power in this court to deny a petition that satisfies its minimum standards, such power should be sparingly exercised.”29 “Once the requirements of § 273 are met, the exercise of such discretion is limited to a determination of whether or not a bona fide inability to agree exists between the two shareholders.”30

The sole corporate asset was a boat, and the only two directors were not able to get along. As the court described the key facts: “… they have disagreed about the proper use of the Boat and the allocation of costs and expenses associated with ownership and maintenance of the Boat.” The court further reasoned, in the context of granting the motion for summary judgment to appoint a receiver, that the two 50/50 stockholders:

indisputably have been engaged in a joint venture (owning the Boat) since January 2016 and, as noted above, there is no dispute that they have been unable to agree as to the continued operation of the Company or how to dispose of its sole asset. Although the Trust disputes Benjamin’s ownership of 50% of Royston, I find for the reasons explained below that there are no genuine issues of fact as to his ownership.

About a dozen prior Delaware decisions applying Section 273 have been highlighted on these pages over the last 13 years. In some of those cases, the 50/50 ownership requirement was not satisfied, for example. In others, the Court determined that there was not a sufficient impasse. Analogous cases involving LLCs have been covered as well. Ultimately, the Court has discretion in this version of corporation litigation regarding whether or not to grant the relief requested.