BILL ANALYSIS �
AB 457
Page 1
Date of Hearing: April 8, 2013
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 457 (Torres) - As Introduced: February 19, 2013
SUBJECT : Shareholders.
SUMMARY : Eliminates the 10-day waiting period that currently
applies for reorganizations in which shareholders have the right
under dissenters' rights to demand payment of cash for their
shares.
EXISTING LAW
1)Authorizes certain actions that may be taken at any annual or
special meeting of shareholders to be taken with written consent
of the shareholders outside of a meeting under specific
requirements and circumstances. [Corporations Code Section 603]
2)Requires corporations to solicit the consent of all shareholders
or subject certain proposed corporate actions to a 10-day waiting
period. [Corporations Code Section 603 (b)(1)]
3)Prohibits shareholders with dissenters' rights from attacking the
validity of the transaction and it prohibits any suit for an
injunction to stop the reorganization. [Corporations Code,
Section 1312 (a)]
FISCAL EFFECT : None.
COMMENTS :
Current law requires corporations to solicit the consent of all
shareholders or subject certain proposed corporate actions to a
10-day waiting period. AB 457, eliminates the 10-day waiting
period which would only apply to California Dissenters' Rights law,
Chapter 13 of the Corporations Code, commencing with Section 1300.
Dissenters' rights permit non-consenting shareholders to seek a
fair market value determination with respect to its shares and
eliminate any right at law or in equity to attack the validity of a
reorganization.
According to the sponsor, the California State Bar, Business Law
Section, Corporations Committee, the 10-day waiting period "places
AB 457
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the consummation of the corporate action at unnecessary risk." For
example, to a merger involving a corporation with one shareholder
who holds 95% of the outstanding shares, who has approved the
transaction, and with a large number of employee shareholders who
hold the remaining 5% by operation of an employee stock incentive
plan. If this corporation wishes to close the transaction quickly
and have its shareholders approve the merger by written consent, it
will be required to either absorb the costs of soliciting the
consent of all shareholders or subject the closing of the
transaction to a 10-day waiting period. The 10-day waiting period
creates significant consummation risk for the parties even though
approval of the transaction is certain. The additional period of
time provides an opportunity for new laws or regulations to be
enacted, for facts or circumstances to develop or exist that may
cause a material adverse effect to one of the parties or for the
conditions of the financial or credit markets to worsen, any of
which may change the landscape of the transaction and affect the
ability or obligation of a party to close.
Under existing law, time periods are already built into California
dissenters' rights laws, which will not be affected by this bill.
These time periods include: after shareholder approval of a
reorganization with dissenter' rights, the corporation would
continue to be subject to a 10-day period in which to notify
shareholders of the approval and provide them with copies of the
dissenters' rights statutes, a description of the procedure to be
followed and a statement of the price the corporation deems to be
fair market value of the shares, including an offer to buy the
shares at that price; dissenting shareholders would continue to
have 30 days to demand appraisal; and, dissenting shareholders
would continue to have six months in which to commence an appraisal
action in Superior Court.
Other states such as Delaware (which is known for being
corporation-friendly) and Nevada do not impose a 10-day waiting
period on any corporate action that is approved by written consent
of shareholders.
QUESTIONS :
The Legislature has made some significant changes to dissenters'
rights laws recently, through AB 1680 (noted below), considering
those changes just enacted last year, why is this change that may
hinder dissenters' rights happen now? Is the deletion of the
10-day waiting period crucial? Does the 10-day waiting serve as a
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disincentive to corporations to incorporate in California?
While Delaware and Nevada are noted for not having this
requirement, are these the only two states?
The sponsor contends that the "additional period of time provides
an opportunity for new laws or regulations to be enacted, for facts
or circumstances to develop or exist that may cause a material
adverse effect to one of the parties or for the conditions of the
financial credit markets to worsen, any which may change the
landscape of the transaction and affect the ability or obligation
of a party to close." Was the 10-day waiting period created to
allow these occurrences?
PREVIOUS LEGISLATION :
AB 1680 (Wieckowski) (Chapter 473, Statutes of 2012) Dissenting
Shareholders' Rights-Provides that the fair market value of
dissenting shares shall be determined as of the day of, and
immediately prior to, the first announcement of the terms of the
proposed transaction, subject to adjustment.
REGISTERED SUPPORT / OPPOSITION :
Support
State Bar of California, Business Law Section, Corporations
Committee.
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081