Corporations - Shareholders - Delegation of Director's Principal Duties Insufficient to Invalidate a Voting Trust

Authors

Gerald D. Rapp, University of Michigan Law SchoolFollow

Abstract

The directors of an intermediate unit in a string of holding companies caused the corporation's sole substantial asset, the stock representing control of a subordinate holding company, to be deposited in a voting trust. Most of these directors, serving one-year terms, comprised the majority of the trustees who were to serve for the life of the ten-year trust. This act served to insulate the lower companies from the control of plaintiffs who were majority shareholders of the top holding company. The plaintiffs sought an injunction restraining the use by the trustees of the stock controlled by the trust to effect a merger of Theodore Gary and Co., one of the lower controlled companies, with General Telephone Co., the largest independent telephone company in the nation, and asked for the invalidation of the voting trust. Disregarding the stated purpose for the trust, i.e., the maintenance of management stability to aid the refinancing of a lower company, the plaintiffs charged that the delegation of duties by the directors and the resulting self-perpetuation of control were conditions which should invalidate the voting trust. The Delaware Court of Chancery denied plaintiff's motion for injunctive relief. On appeal, held, affirmed. Absent a showing of abuse or fraud by the directors, the delegation of principal duties and possibility of extended control via the trust instrument are not conditions sufficient to invalidate an otherwise lawful voting trust. Adams v. Clearance Corp., (Del. 1956) 121 A. (2d) 302.

Recommended Citation

Gerald D. Rapp, Corporations - Shareholders - Delegation of Director's Principal Duties Insufficient to Invalidate a Voting Trust, 55 Mich. L. Rev. 1175 (1957).
Available at: https://repository.law.umich.edu/mlr/vol55/iss8/9