Katz v. Bregman
Citation and Court
Katz v. Bregman, 431 A.2d 1274 (Del. Ch. 1981)
Facts
Plant Industries, Inc. sold its major Canadian subsidiary, which represented approximately 74% of the company’s total assets and 45% of its net sales, without obtaining shareholder approval. A shareholder brought suit to enjoin the sale, arguing it constituted a sale of “substantially all” of the corporation’s assets requiring shareholder approval under DGCL §271.
Issue
Does the sale of a major subsidiary representing 74% of total assets constitute a sale of “substantially all” corporate assets requiring shareholder approval under DGCL §271?
Holding
Yes. The Delaware Court of Chancery enjoined the sale, holding that the transaction constituted a sale of substantially all of Plant Industries’ assets requiring shareholder approval.
Rule / Doctrine
Under DGCL §271, a sale of “substantially all” of a corporation’s assets requires approval by a majority of outstanding shares. The determination is both quantitative and qualitative: courts look at what percentage of total assets are being sold (quantitative) and whether the sale fundamentally changes the nature of the enterprise (qualitative). A sale that disposes of a company’s primary business and transforms it into a fundamentally different entity triggers the shareholder approval requirement even if some assets remain.
Significance
Katz v. Bregman is a key case illustrating the scope of DGCL §271 and the “substantially all” standard. It demonstrates that courts apply both a numerical threshold and a qualitative assessment focused on whether the transaction fundamentally alters the corporate enterprise. The case protects shareholders from board decisions that radically transform the company they invested in without giving them a vote.