COMMENT

Source: Model Statutory Close Corporation Supplement, § 42. There was no comparable provision in former Georgia law.

A court-ordered buy-out is a drastic remedy, particularly if the shareholder ordered to sell his shares does not wish to sell. For this reason Section 14-2-942 authorizes a share purchase order only if other relief short of liquidation will not, in the judge's opinion, resolve the dispute. If a buy-out ordered by the court is not consummated, however, an order dissolving the corporation is authorized. This may place pressure on the remaining shareholders to obey the order but also gives them the option of dissolution if they think the order is too onerous.

If the court orders a buy-out, it must also determine the fair value and other terms of the buy-out in accordance with subsection (b). Fair value is to be determined under principles developed in dissenters rights and other valuation cases. The court may require the selling shareholder to enter into a covenant not to compete and also may order an installment sale in order to protect the business and to minimize the financial strain on the purchasers. See also the Comment to Section 14-2-914.

This section permits the designated purchasers either to consummate the purchase or to permit the corporation to be dissolved. Presumably the remaining shareholders will elect to have the corporation dissolved if its economic prospects are bleak. Leaving the choice to the remaining shareholders is fairer than ordering dissolution without giving the remaining shareholders the opportunity to buy out the complaining shareholder or requiring the remaining shareholders to purchase the shares without giving them the option of voluntary dissolution (which they would not have unless they held sufficient voting shares to approve a dissolution).

If the remaining shareholders agree to comply with the court ordered buy-out, the sale operates as a release of all claims the selling shareholder may have against the corporation, or its directors, officers, or shareholders. The selling shareholder may still pursue any contractual claim he might have against the corporation - for example, a claim for breach of a long term employment contract - to the extent the claim is not dealt with in the court's order. Normally, however, the order should dispose of these contractual claims. The selling shareholder also retains the right to collect any unpaid balance due on the purchase price of his shares, including the right to realize on any collateral given as security for the unpaid balance. Quite frequently the shares being sold have been pledged as security; in these situations, if there is a default, the former shareholder has the choice of foreclosing on the note and again becoming a shareholder or suing to have the corporation dissolved under Section 14-2-943.

Under Section 14-2-942(c) the court has power to modify its final order at any time upon the petition of any party. For example, should financial or legal constraints prevent the purchasers from fulfilling the terms of a mandated buy-out, the court might modify its order. See also the Comment to Section 14-2-914.

Finally, the buy-out and dissolution remedies provided by this section and Section 14-2-943 are cumulative of ordinary remedies available under Section 14-2-941; for example, a court may award damages in addition to compelling a buy-out. See the Comment to Section 14-2-940.

Cross-References Dissenters' rights, see § 14-2-1301 et seq. Dissolution, see § 14-2-1401 et seq. Relief cumulative, see § 14-2-941. Share purchase on death of shareholder, see § 14-2-914.

RESEARCH REFERENCES