Dissolution Under BCL 1104 Unavailable to Owner of 49 Percent of Voting Stock

On July 16, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in Balkind v. Nickel, 2018 NY Slip Op. 31703(U), holding that a 49 percent shareholder in a New York corporation was not entitled to seek dissolution under BCL 1104, explaining:

Business Corporation Law provides that the holders of shares representing one half of the votes of all outstanding shares of a corporation entitled to vote in an election of directors may present a petition for dissolution on one or more of the following grounds:

(1) That the directors are so divided respecting the management of the corporation's affairs that the votes required for action by the board cannot be obtained.
(2) That the shareholders are so divided that the votes required for the election of directors cannot be obtained.
(3) That there is internal dissension and two or more factions of shareholders are so divided that dissolution would be beneficial to the shareholders.

Nickel opposes dissolution and seeks to dismiss the petition, arguing that Balkind does not have standing pursuant to BCL § 1104 because Balkind represents less than 50 percent of the Corporation's total voting stock.

Balkind does not dispute that Aubrey Balkind, together with the trusts, only represent 49 percent of the Corporation's total voting stock, but argues that the focus of BCL § 1104 is not equal ownership but equal power. According to Balkind, because the parties have equal power to elect directors under the terms of the Shareholder Agreement, Balkind has standing to seek judicial dissolution pursuant to BCL § 1104.

Contrary to Balkind' s position, BCL § 1104 is clear - to petition for judicial dissolution, petitioners must be the holders of shares representing one-half of the votes of all outstanding shares of a corporation entitled to vote in an election of directors. Under the plain meaning of the statute, Balkind, as the holder of 49% of the voting stock, does not have standing, and New York courts strictly interpret and apply the statute.

Neither does reference to the Shareholder Agreement confer standing under BCL § 1104. That agreement merely designates Aubrey Balkind and Nickel as the Corporation's two directors irrespective of voting stock ownership, which is not the same as equal voting power to elect directors in the context of BCL § 1104's standing requirement. Under these circumstances, Balkind is unable to invoke BCL § 1104 as a deadlock breaking device.

(Internal quotations and citations omitted).

This decision relates to a significant part of our practice: business divorce (a break-up between the owners of a closely-held business). Indeed, Schlam Stone & Dolan partner Jeffrey M. Eilender and associate Lee J. Rubin were contributors to the recently-released 2017 Supplement to Litigating the Business Divorce by Kurt Heyman and Melissa Donimirski. Contact Jeffrey Eilender at jeilender@schlamstone.com or Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a business divorce.