Dissenters' Rights And Conversions

Chapter 13 of the California General Corporation Law provides for statutory dissenters' rights.  In general, dissenters' rights are rights granted to shareholders to require the corporation to buy their shares for cash at an agreed upon price, or if they and the corporation fail to agree, at an appraised price.  Pursuant to Section 1300(a), dissenters' rights are available when the approval of the outstanding shares is required for a "reorganization" of the corporation pursuant to Sections 1201(a), (b), (e) or (f).   Although a short-form merger is not a "reorganization" as defined in Section 181, the minority shareholders of a subsidiary in a short-form merger are entitled to dissenters' rights under Chapter 13 pursuant to Section 1110(h).

Conversions are also not included within the definition of "reorganizations" and thus it might appear that shareholders do not have dissenters' rights in a conversion transaction.  However, Section 1313 provides that a conversion pursuant to Chapter 11.5 of the Code is deemed to constitute a "reorganization" for purposes of Chapter 13 "in accordance with and to the extent provided in Section 1159".  That statute provides:

The shareholders of a converting corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares (Section 152), and the converting corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of a corporation involved in the reorganization.  Solely for purposes of applying the provisions of Chapter 13 (and not for purposes of Chapter 12), a conversion pursuant to Section 1151 or 1157 shall be deemed to constitute a reorganization.