On August 16, 2013, California Governor Jerry Brown signed into law AB 457, which eliminates the 10-day waiting period for consummating certain corporate reorganizations under California law that are approved by less than unanimous written consent of the shareholders. Under current law, unless the consents of all shareholders of a California corporation entitled to vote have been solicited in writing, notice of shareholder approval must be provided to non-consenting shareholders at least 10 days before consummation of certain corporate reorganizations. The 10-day waiting period has been a source of concern because when constituent parties to the transaction were not able to work around it, it has delayed closings and, in some cases, resulted in abandoned transactions as a result of information leaks during that period.
The change in law applies only to transactions in which shareholders have the ability to exercise dissenter’s rights. The new law, which will become effective on January 1, 2014, will facilitate the rapid closing of transactions approved by majority consent where not all shareholder consents were solicited.
The rationales for the amendment are that (1) there is no need for a 10-day waiting period when the shareholders have validly approved a transaction, (2) non-consenting shareholders have adequate remedies in the form of dissenter’s rights and (3) eliminating the requirement promotes efficiency and provides flexibility to corporations contemplating covered transactions.
The 10-day waiting period will continue to apply to transactions approved by less than unanimous written consent where dissenters’ rights do not apply, such as approvals of certain transactions involving conflicts of interest or indemnification.