Revoking the Irrevocable Buyout: Aligning Equity with Due Diligence in Corporate Dissolution
Judicial dissolution of a closely held corporation, the “corporate divorce,” is one of the most acrimonious, expensive, and, by almost all accounts, unpopular of legal remedies available in business litigation. Modern corporate statutes tend to reflect this widely held aversion by providing courts and litigants with a variety of alternatives to ending a business’s existence. The buyout election, for example, a sort of call option patterned after common law remedies and American Bar Association (“ABA”) model legislation, provides one means by which shareholders and corporations can avoid the extreme remedy of corporate dissolution by forcing complaining shareholders to sell their stock to them. But when can these electing shareholders or corporations change their minds about the decision to buy out their adversaries? Many statutes deem the buyout election “irrevocable”—but then allow a court to set it aside if it would be equitable to do so. Such a fluid notion of irrevocability presents challenges.