| Applicable Statute | | | | The Court based its determination on the fact that |
| New York State's corporate dissolution statute, NY | | | | the controlling members of the company, after many |
| Business Corporations 1104-a, provides for the | | | | years of paying dividends, cut off the minority |
| involuntary dissolution of a corporation when the | | | | shareholder's only means of receiving a benefit from |
| "directors or those in control of the corporation have | | | | the company while continuing to pay themselves |
| been guilty of illegal, fraudulent or oppressive actions | | | | distributions through salaries or extra compensation. |
| toward the complaining shareholders" in a company | | | | Available Remedies: |
| that is not publicly traded. | | | | The statutory remedy for oppression in New York is |
| | | | dissolution of the company, but courts often view |
| What is Oppressive Conduct? | | | | dissolution as a remedy of last resort. |
| In an "oppression" case, the first inquiry of a New | | | | If a New York court finds that majority shareholders |
| York court will be to determine whether the | | | | have acted in an oppressive manner toward the |
| complained of acts are actually "oppressive." Though | | | | minority, it will then separately determines whether |
| the dissolution statute does not define what | | | | dissolution is warranted by the conduct in question. It |
| oppressive acts are, one of the leading cases on the | | | | will consider whether dissolution is necessary for the |
| subject, Matter of Kemp & Beatley, Inc., interprets | | | | protection of the rights and interests of the |
| them as actions which "substantially defeat | | | | complaining shareholders. It will look at the impact on |
| shareholder expectations that, objectively viewed, | | | | all shareholders and at whether there are other last |
| were both reasonable under the circumstances and | | | | drastic remedies. As a practical matter, courts will |
| were central to the petitioner's decisions to join the | | | | rarely order dissolution of a profitable and viable |
| venture." This standard is widely followed. | | | | business. |
| Oppressive conduct is most often found when there | | | | Since, New York courts have broad discretion in |
| are a number of actions that, when taken together, | | | | fashioning remedies, they will often find less severe |
| have the effect of denying the minority shareholder | | | | means of rectifying the wrongs complained of. New |
| benefits from the company that he or she had the | | | | York courts, under their general equity powers, will |
| reasonable expectation of. Often the Court will look | | | | order buyouts of one shareholder by the others, the |
| at what is motivating the majority's actions and | | | | payment of dividends and enjoin other deprivations |
| whether there is an effort to "freeze out" or | | | | of the benefits of share ownership. |
| "squeeze out" the minority. | | | | NY Business Corporations §1118, in fact, provides |
| "Freeze-outs" denote efforts by the majority to | | | | that in any proceeding brought under §1104-a, any |
| deny the minority of the benefits of share | | | | other shareholder or shareholders or the corporation, |
| ownership, and "squeeze outs" are efforts to force | | | | may, within ninety days after the filing of the |
| them out of the company altogether. | | | | petition, purchase the shares owned by the |
| Courts in New York have held that minority | | | | petitioners at their fair value. New York courts have |
| shareholder's expectations have been frustrated by, | | | | ordered buyouts outside the context of §1118, but |
| among other things: | | | | have modeled relevant issues and procedures of the |
| - Removal of a minority shareholder from corporate | | | | buyout after the statute. |
| offices; | | | | In one illustrative case, Gimpel v Bolstein, the court |
| - Refusing to declare dividends to a minority | | | | found that a majority shareholder's failure to hold |
| shareholder; | | | | shareholders' meetings, failure to issue proper stock |
| - Removal of a minority shareholder from his | | | | certificates reflecting the minority shareholder's actual |
| employment in the company; | | | | interests in the corporation, and failure to allow the |
| - Denial of a minority shareholder's access to | | | | minority shareholder access to stock ledgers, though |
| information. | | | | improper and oppressive, would not justify dissolution |
| However, these determinations are highly fact | | | | of the corporation. In that particular case, the court |
| specific. For example, in Matter of Kemp, the court | | | | ordered the corporation to either alter its corporate |
| found that that the alteration of a long-standing | | | | financial structure so as to commence payment of |
| policy of distributing corporate earnings on the basis | | | | dividends, or to buyout the minority shareholders |
| of stock ownership constituted oppressive conduct. | | | | interest within six months. |