DealLawyers.com Blog

Well, okay, that’s not exactly a direct quote from Vice Chancellor Laster’s  recent decision to modify the terms of the Dole Food appraisal settlement, but it certainly captures the spirit of it.  To make a long story short, the T+3 settlement cycle – combined with huge short interest & obsolete record-keeping practices – resulted in more than 12 million additional shares having the right to make a claim to the appraisal settlement proceeds than should’ve been the case.

In determining to modify the settlement, the Vice Chancellor shared his thoughts about how this mess came to be:

This problem is an unintended consequence of the top-down federal solution to the paperwork crisis that threatened Wall Street in the 1970s. Through the policy of share immobilization, Congress and the Securities and Exchange Commission addressed the crisis using the 1970s-era technologies of depository institutions, jumbo paper certificates, and a centralized ledger. See generally In re Appraisal of Dell Inc.(Dell Ownership), 2015 WL 4313206, at *3–7 (Del. Ch. July 30, 2015).

It was an incomplete solution at the time. Since then, despite laudable and largely successful efforts by the incumbent intermediaries to keep the system working, the problems have grown. See, e.g., In re Appraisal of Dell Inc., 143 A.3d 20, 59 (Del. Ch. 2016) (holding that under current Delaware law, beneficial owners forfeited their appraisal rights by inadvertently voting in favor of the merger due to complexities created by depository system); Dell Ownership, 2015 WL 4313206, at *9–10 (holding that under current Delaware law, beneficial owners forfeited their appraisal rights due to administrative change in the name of the nominee on the share certificate necessitated by depository system).

So what’s the fix?  The Vice Chancellor points to “distributed ledger technologies” – aka blockchain – which could provide a solution by “maintaining multiple, current copies of a single and comprehensive stock ownership ledger.”

– John Jenkins