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 substantially all.”
      • 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 sale.
    • 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.