Give Me Back My Money: A Proposed Amendment to Delaware's Prepayment System in Statutory Appraisal Cases

摘要

In 2016, the Delaware General Assembly amended section 262 of the Delaware General Corporation Law to provide surviving corporations with the option to prepay stockholders in appraisal cases. Specifically, the amendment gives a surviving corporation the option to pay, in advance of a trial, to determine the stock's fair value, whatever amount per share that it chooses. Doing so cuts off the statutory interest on the prepaid amount, which theoretically should disincentivize investors from filing appraisal petitions solely to turn a profit from the statutory interest rate—a strategy known as "interest-rate arbitrage." But in amending the statute, the General Assembly did not specify whether the petitioning stockholders must return to the corporation any amount by which the prepayment exceeds the court's determination of fair value. The resulting ambiguity has not only caused uncertainty among litigants and costly motion practice in the Delaware Court of Chancery—a consequence, ironically, that the legislative amendment was aimed at avoiding—but has also diminished the amendment's effect on curbing interest-rate arbitrage and, more generally, appraisal arbitrage. This article explores the history behind the prepayment amendment, including the evolution of Delaware's appraisal statute and two Court of Chancery cases in which the Court foresaw the need for an effective prepayment system. This article also examines the legislative history of the 2016 amendment and other scholars' suggestions for dealing with the statutory ambiguity. Finally, the article offers a new model for legislative reform, one that retains section 262's core and advances the policy objectives that underlie Delaware's appraisal system.