it is accomplished without court
oversight, the corporation remains in
control of how quickly or slowly the
dissolution progresses. Control over
the process allows for flexibility in how
the corporation distributes its assets
and when it effects the dissolution.
This flexibility can substantially
reduce the costs associated with the
dissolution. This method has proven
particularly effective for a corporation
that has few creditors and a defined
universe of potential claimants. For
example, a company that has ceased
operations and maintains limited
assets may find a non-safe harbor
dissolution desirable because it likely
knows what creditors hold claims,
what (if any) additional claims may
arise, and any other issues that
may impact go-forward liability. A
company in that situation efficiently
can account for these foreseeable
issues in the plan of dissolution.
On the other hand, a corporation that
has more liability exposure (either
current or future) or desires additional
protection for its stockholders and
management may opt for a safe harbor
dissolution or seek the appointment
of a receiver to minimize any
current or future risk. Companies
with more complex structures and
diverse creditor bodies or those that
manufacture hazardous products
(e.g., products containing asbestos)
may want the comfort of a court-approved reserve to insulate a parent
and directors from future claims.
Though it can cost more than non-safe harbor dissolution, a safe harbor
dissolution, with or without a receiver,
can still be accomplished quickly and
more efficiently than a bankruptcy
filing. The Delaware Court of Chancery,
as a court of equity, is sympathetic
to the time sensitivities at play in
many business transactions and will
promptly—at times, within hours—
avail itself to a corporation when the
circumstances justify such treatment.
In addition, Delaware’s broad equitable
powers and abundant body of case
law empower the court to make
swift decisions to resolve issues
that arise during the liquidation and
dissolution processes. Though safe
harbor dissolution may be more time-consuming, it can often accomplish
the corporation’s goals more quickly,
efficiently, and cost-effectively
than a protracted bankruptcy,
Justin R. Alberto is a partner in the Business
Restructuring and Liquidations practice at
Bayard P. A. in Wilmington, Delaware. He
represents debtors, committees, and other
significant parties in interest in a host of
industries. He also works with financially
distressed companies in liquidations and
dissolutions, as well as with private equity funds
and receivers in wind-down settings under
Delaware state law. Alberto can be contacted at
email@example.com or 302-429-4226.
Sara E. Bussiere is an associate in the Corporate
and Commercial Litigation departments at Bayard
P.A. in Wilmington, Delaware. She concentrates
her practice on litigation in the Delaware
Court of Chancery and routinely works with
companies and receivers to wind down financially
distressed entities. Bussiere can be contacted at
firstname.lastname@example.org or 302-429-4230.
while also providing significant
protections to the corporation’s
directors and stockholders.
Finally, a receiver can serve as a
helpful intermediary between the
corporation and the court. Delaware
law allows the corporation to identify
and propose a receiver, which,
subject to court approval, oversees
the winding-down and dissolution
process. This flexibility can be
particularly useful if the corporation
is engaged in a specialized business,
has a unique structure, or remains
subject to certain constraints, such
as time or impending transactions
among related entities, to which the
court may be sensitive or for which
court intervention may be helpful.
While bankruptcy remains the
most common way to wind down a
portfolio company, it is not the only
option. In certain situations, state law
liquidation and dissolution can be
more cost-effective than bankruptcy
and permit a company to retain greater
control over the process, while also
insulating management and its parent
master fund from future liability.
However, unlike its bankruptcy
counterpart, state law generally does
not provide for an automatic stay of
litigation and collection efforts. While
the Court of Chancery can be receptive
to requests to halt a proceeding or
foreclosure, a company may not always
avoid aggressive creditors trying
to subvert the dissolution process.
Thus, it is important to consider the
benefits and consequences of state
law liquidation and dissolution as
compared to a bankruptcy filing
and tailor the course of action
based on the company’s particular
needs and circumstances. J
1 Determining the best method to wind
down a portfolio must start with an
analysis of the company’s capital structure.
Warring creditor constituencies or
several tranches of competing funded
debt may make a streamlined state
law dissolution impracticable.
2 8 Del. C. Sections 280-81(a) (safe harbor);
Section 281(b) (non-safe harbor).
3 8 Del. C. Sections 279; 291.
4 The effective date of the certificate of
dissolution may be up to, but not more than,
90 days after the filing of the certificate of
dissolution, which affords the company time
to wind up its affairs. 8 Del. C. Section 103(d).
5 8 Del. C. Section 278.
6 See 8 Del. C. Section 282 (limiting stockholder
liability to the amount distributed to him
or it in the liquidation); 8 Del. C. Section
281(c) (immunizing directors from personal
liability if certain procedures followed).
7 8 Del. C. Section 281(b).
8 8 Del. C. Section 291.