Under Section 273 of the DGCL, the third requirement under the statute is the inability of the two stockholders to agree upon the desirability of discontinuing the joint venture and disposing of its assets.
The meaning of this phrase was addressed in the case of In re Venture Advisers, Inc., 1988 Del. Ch. LEXIS 151 (Del. Ch. Dec. 1, 1988). There, the objecting stockholder argued that this requirement had not been met because the stockholders had never discussed discontinuing the business, and the objecting stockholder had never refused the corporation voluntarily.
In rejecting the objecting stockholder’s argument, the Court found that the critical inquiry is whether there exists “a genuine inability to agree”, and “any competent evidence” may be proffered to prove such disagreement. Moreover, the Court held that direct communications between the stockholders was not the exclusive means of establishing the inability to agree factor. In Venture Advisers, the Court found that petitioner had established a “genuine inability to agree” under the “totality of the circumstances.”
Accordingly, parties may be able to establish the third element of the Section 273 statute without the necessity for direct personal communications between the stockholders conferring on the issue of whether to discontinue the joint venture prior to filing the petition.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at email@example.com.