The New York Court of Appeals has followed Delaware in holding that the business-judgment rule applies to going-private mergers as long as certain shareholder-protective measures are met. The court’s May 5, 2016 decision in In the Matter of Kenneth Cole Productions, Inc. Shareholder Litigation, Case No. 54, adopts the standard set forth by the Delaware Supreme Court in Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”), and relaxes judicial scrutiny of controlling shareholders’ going-private mergers if the transactions provide certain protective conditions to safeguard the interests of minority shareholders.
Business-Judgment Rule
Business-Judgment Rule Applied in NY to Going-Private Transaction Where Procedural Protections Exist
By Jonathan Richman on
Originally published as a Proskauer Client Alert.
The New York Appellate Division, First Department, ruled yesterday that the business-judgment rule – not the entire-fairness standard of review – can apply to a going-private transaction with the majority shareholder where the majority shareholder did not participate in the board’s vote on the merger, the remaining directors were not alleged to be self-interested, and the merger required the approval of the majority of the minority shareholders. In re Kenneth Cole Productions, Inc. Shareholder Litigation, Index No. 650571/12 (N.Y. App. Div. 1st Dep’t Nov. 20, 2014).
The ruling aligns New York law with Delaware law and provides greater protection for interested transactions implemented with procedural protections that obviate any coercion or conflicts of interest.