Deadlock and Divergent Views of the Company's Future

At the New York Business Divorce Blog, Peter Mahler asks: "One 50% Shareholder Wants to Sell or Liquidate the Business. The Other Wants to Keep It Going. Is That Deadlock?" In answering his question, Mahler refers to recent New York caselaw:

Imagine A&E Stores’s business was operating like a well-oiled machine with profits rolling in by the boxcar. We’d probably all agree under those circumstances that a deadlock petition brought by a 50% owner, alleging a disagreement however genuine over whether to sell or continue the business, likely would fall flat. Thus it makes sense that the same disagreement at a time when the business is undergoing financial distress, as Justice Scarpulla held, by itself does not entitle the petitioner to dissolution. The disagreement or dissension must be the proximate cause — not merely a symptom — of the business’s dire state of affairs. Such a showing may inherently be more difficult when the two 50/50 owners are not actively involved in the corporation’s management, as appears to be the case in Ades. Keep in mind, however, that every case rests on its unique facts and the petitioner in Ades may yet be able to establish adequate grounds for dissolution. Also keep in mind the deeper lesson of cases like Ades, which is the potentially high cost of not having a shareholders’ agreement with buy-sell provisions.

Delaware law considers deadlock a significant factor in determining whether it is not reasonably practicable to carry out the company’s business, the standard for judicial dissolution for an LLC.[1] In the corporate context, deadlock is also of prime importance under certain circumstances.[2]

[1] 6 Del. C. § 18-802; see also PMA Media Group Inc. v. Zambrano Family Limited Partnership, C.A. No. 1104-VCP (Hearing Transcript Jul. 22, 2015).
[2] 8 Del. C. § 226; 8 Del. C. § 273.