Stockholder Voting and Subsidiary Asset Sales After Hollinger
In today's world of complex corporate structuring, it is common for a public company to own its operating assets through direct or indirect, wholly-owned subsidiaries. In such structures, the public company is a holding company that generates income only through its equity ownership in its subsidiaries, and not as a direct result of owning the operating assets. However, when the operating assets held in a subsidiary are sold, other than through a sale of the equity of a particular subsidiary, counsel is frequently asked whether a court would consider such a sale to be a sale of the subsidiary's assets, rather than a sale of the parent corporation's assets. For Delaware corporations (and Delaware practitioners), this distinction is important. Pursuant to Section 271 of the General Corporation Law (the "General Corporation Law"), the sale by a corporation of all or substantially all of its assets triggers a stockholder vote.
The recent decision by the Delaware Court of Chancery in Hollinger Inc. v. Hollinger Int'l Inc. offered some fresh insight on how the Court of Chancery views Section 271 of the General Corporation Law ("Section 271"). Among other things, the Hollinger decision suggests reasons why, in certain circumstances, practitioners may not be able to rely on a technical statutory argument that a vote of the stockholders of a subsidiary, but not of the stockholders of the parent corporation, is required to approve any sale of assets by a subsidiary.[4] In addition, the Hollinger decision examines the traditional "qualitative" and "quantitative" analysis in the relevant Delaware precedent construing Section 271 and infers that the threshold for triggering a stockholder vote in an asset sale should be higher than prior precedent suggests. However, before considering the Hollinger decision, it is important to understand the common law landscape that developed in the years preceding the Hollinger decision.