What Are Directors' Fiduciary Duties When Selling Control of a Corporation?
| Publication year | 2017 |
| Author | Posted on June 5, 2017 by Suzanne L. Weakley, Esq. |
Posted on June 5, 2017 by Suzanne L. Weakley, Esq.
Suzanne L. Weakley is a Publications Attorney at Continuing Education of the Bar -California. Among other things, she is responsible for producing and editing new business law books, including Understanding Fiduciary Duties in Business Entities (Cal CEB 2016). She is a member of the Opinions Committee, a former member of the Executive Committee, and former chair of the Partnerships and Limited Liability Companies Committee.
Copyright 2017 by the Regents of the University of California. Reproduced with permission of Continuing Education of the Bar - California. (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our Web site, CEB.com).
In Delaware, courts impose the so-called Revlon duty, which can be described as the fiduciary duty to make reasonable efforts to obtain the highest sales price reasonably possible in view of the market for the company. This may even involve conducting a public auction for the company or at least a check of the market, depending on the circumstances, and agreements must include a so-called "fiduciary out" to allow the directors to accept a higher bid after the agreement has been signed by a would-be buyer. See Revlon Inc. v MacAndrews & Forbes Holdings, Inc. (Del 1985) 506 A2d 173; Omnicare, Inc. v NCS Healthcare, Inc. (Del 2003) 818 A2d 914. But, as Keith Paul Bishop notes in his recent blog post on California Corporate and Securities Law, "[d]espite its notoriety in Delaware, Revlon is nearly unknown in California jurisprudence."
Although California case law is scarce, the California General Corporation Law (CGCL) has many provisions that expressly set out the rights and obligations of directors and shareholders in change-of-control contexts. As Andrew T. Orr explained in his article Applying Revlon in California in CEB's California Business Law Practitioner, the CGCL establishes a robust, cohesive statutory foundation that gives shareholders greater protection and a louder voice in change-of-control transactions than do statutory schemes in other states, including Delaware. See, e.g., Corp C §152 (class-vote requirement), §§407, 1101, 1110 (restrictions on freeze-out transactions), §1203 (fairness opinion requirement), §§1502, 1502.1 (access to information), §§1300-1313 (dissenter's rights). Moreover, the many bright-line...
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