Supreme Court of Delaware, 1962
40 Del.Ch. 509, 185 A2d 480.
P, owners of 248 shares, brought suit against D (Mission Development) to compel liquidation of Mission and the distribution of D’s assets.
-Mission = holding company for Tidewater.
-Tidewater discontinued payout of cash dividends in 1954, which effectuated a discontinuance of D’s income.
-Tidewater’s management deemed it unwise to issue a dividend (before was a 5% stock dividend), as it would decrease D’s proportionate ownership of Tidewater. Adopted for policy of corporate expansion and modernization.
-Extreme relief of receivership to wind up a solvent growing business is rarely granted. To obtain it there must be a showing of imminent danger of great loss resulting from fraud or mismanagement.
-Same caution dictated in considering an application to compel a corporation to make a partial distribution.
P’s Argument: Because of high income taxes, controlling stockholder is not interested in receiving dividends, he is interested in receiving more shares of Tidewater (conflicting interest between him and minority shareholders).
Should the court compel Mission to liquidate?
No, P has failed to make a case. Here Tidewater’s policy was adopted in furtherance of its own corporate interest. Therefore, Mission’s stockholders have not been subjected to an actionable wrong and have no complaint.
-Court looks at the fact that since 1960, Tidewater’s cash has been largely devoted to capital improvements and that, in the management’s opinion, funds were not available for dividends.
-The sole purpose of Mission is and has been to buy Tidewater stock. Any investor in its shares could readily ascertain this fact. Because of this he knows, or should know, that he is buying for growth and not for income.