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May 31, 2022

31 May 2022

“Twice Tested” and Still Fair, and the Ongoing Relevance of Schnell

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This blog recently discussed the Delaware Supreme Court’s decision in Coster v. UIP Companies, Inc., wherein the Court held that a stock sale that satisfied the entire fairness standard — the most rigorous in Delaware’s corporate law — should undergo still further review to assess the board’s motivations in approving the sale. The Court reversed the decision of the Court of Chancery, which had assumed that entire fairness was the “end of the road” for judicial review, and instead invoked the seminal 1971 decision in Schnell v. Chris-Craft to explain that “inequitable action does not become permissible merely because it is legally possible.”  Under Delaware law, therefore, board actions are “twice tested”: first for legal authorization, and second to determine whether such action was equitable. (more…)