Sunday, April 29, 2012

Rothschild International Corporation v. Liggett Group Inc. case brief, 474 A.2d. 133

Rothschild International Corporation v. Liggett Group Inc.Supreme Court of Delaware, 1984.
474 A.2d. 133.


(Liquidation)


FACTS
-Owners of 7% cumulative preferred stock in D filed suit arising out of a combined tender offer and reverse cash-out merger whereby the interests of the 7% preferred shareholders were eliminated for a price of $70/share, amount $30 below liquidation preference stated in D’s certificate of incorporation.

-Claim for breach of k and breach of fiduciary duty.
-P contends that takeover of D via combined tender offer and merger in essence effected a liquidation of the company which warranted payment to the holders of the 7% preferred stock of the $100 liquidation preference set out in the charter.

D: GM’s plan on acquisition was equivalent to a liquidation. (court disagrees)

RULES
-Preferential rights are contractual in nature and governed by the express provisions of a company’s certificate of incorporation.  Stock preferences must also be clearly expressed and will not be presumed.Liquidation: means winding up of the affairs of the corporation by getting in its assets, settling with creditors and debtors and apportioning the amount of profit and loss.

ISSUE: Was there a liquidation here?
HOLDING: No, there was no liquidation of D within the well defined meaning of the term.

ANALYSIS
-Court states that D retained its corporate identity.
-Having elected this plan of reorganization, parties had the right to avail themselves of the most effective means of achieving the result, subject on to their duty to deal fairly with the minority interests.
-Only upon liquidation of its assets would D’s pref. shareholders’ charter rights to payment of par value spring into being.
-Merger does not equal liquidation.
-Minority stock interests may be eliminated by merger.
-Stockholders are charged with knowledge of this possibility at the time they acquire their shares.

P Argues “Breach of Fiduciary Duty”
-the stockholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern.  Fair value is not liquidation value.
-Shareholders were entitled only to an amount equal to their proportionate interests in D as determined by all relevant factors.

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