Earlier this month, the Delaware Chancery Court offered further guidance on 8 Del. C. § 273, which establishes a mechanism for the dissolution of a joint venture corporation with two 50 percent stockholders. The Chancery Court found that the purpose of Section 273 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/or how the corporation’s assets should be liquidated. The Chancery Court’s discretion to deny a dissolution petition is limited and should be sparingly exercised only upon a showing of bad faith.
The dispute arose from a real estate joint venture jointly owned by the families of Morton Grossman and Bernie Cohen. The limited partnerships that held the joint venture assets were controlled by two Delaware corporations, the stock of which was owned 50/50 by the two families. Over time, the Grossman and Cohen families reached a disagreement with respect to various strategic alternatives, including the extent to which the joint venture assets should be used to create short-term liquidity. A Grossman family member petitioned to dissolve the joint venture under Section 273, and the Cohen family opposed.
The Chancery Court found that the requirements for dissolution under the statute are minimal, and that the court should only exercise its discretion to deny dissolution in the rare case where the petition itself was brought in bad faith, e.g., where there is no genuine disagreement or deadlock between the joint venturers.
The court emphasized that the deadlock or impasse need not exist for any “prolonged period” as the statute does not require “extended suffering.” A good faith requirement “does not mandate that parties struggle until they have destroyed their relationship entirely and jeopardized their business.”
The Chancery Court granted the petition and agreed to appoint a trustee to oversee the liquidation and/or distribution of the joint venture’s assets.
In the Matter of Bermor Inc., C.A. 8401-VCL (Del. Ch. Feb. 9, 2015)