Gimbel v. Signal Companies, Inc.
316 A.2d 599 (Del.Ch. 1974)
The board of directors of
Signal voted to sell one of their subsidiaries (Signal Oil) to Burmah Oil.
At the time, Signal Oil
represented 26% of Signal's assets, 41% of its net worth, and produced
15% of their revenue.
Signal originally started as
an oil company, but by this time had diversified into a lot of other
businesses, and their oil business was no longer their 'core business'.
Gimbel, a Signal shareholder,
sued to stop the sale.
Gimbel argued that directors
lacked the authority to enter into such a significant transaction without
a shareholder vote.
Delaware law (8 Del.C.
§271(a)) requires majority
shareholder approval for the sale of "all or substantially
all" of the assets of a Delaware corporation.
Gimbel argued that Signal
was at its heart an oil company, and selling off all of their oil assets
so significantly changed the character of the company that it met the
definition of §271.
The Trial Court found for
Signal and allowed the sale.
The Trial Court found that
based on §271, a sale of less
than substantially all of a corporation's assets did not require a vote.
The Court looked at the
numbers and found that Signal Oil was a significant part of Signal's over
all assets, but did not meet the requirement of "all or
The Court defined that to
be any part that is "vital' to the corporation or assets
substantial enough that there wouldn't be a viable business left after
The Court found that just
because Signal started as an oil company, the fact it was completely
getting out of the oil business did not give shareholders any particular
rights. The Court noted that corporations change character. That's a
normal part of the business world.
Basically, the Court found
that sales that cause the corporation to depart radically from its
historical line of business did not constitute a sale of substantially
all of the corporation's assets.
Under the Model Business
Corporations Act §12.02(a), a
shareholder vote is required if the corporation sells off more than 75% of
the corporation's consolidated assets and 75% of either its consolidated
revenues or pre-tax earnings.