Court of Chancery Confirms No Price-Maximization Duty on Public Benefit Corporation Directors
In Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P. (Del. Ch. July 29, 2026), the Delaware Court of Chancery confronted an issue of first impression: how, if at all, the Revlon enhanced-scrutiny framework applies when the board of a public benefit corporation (“PBC”) navigates a change-of-control transaction. Revlon directs a board, in a sale-of-control scenario, to obtain the best price reasonably available for stockholders. However, under Section 365(a) of the Delaware General Corporation Law (“DGCL”), directors of a PBC are statutorily obligated to balance stockholders’ pecuniary interests against the interests of other stakeholders and the corporation’s stated public benefit when conducting corporate business.
The Court resolved that tension by distinguishing between Revlon as a standard of conduct and Revlon as a standard of review. It concluded that (i) Revlon does not impose a standard of conduct (i.e., a price-maximization mandate) on PBC directors, because that would be irreconcilable with the balancing requirement of DGCL § 365(a), but that (ii) Revlon’s “enhanced scrutiny” standard of review (which the Court styled “PBC enhanced scrutiny” in this context) may still apply to a PBC board’s change-of-control decisions. Although the Court did not have to decide whether that modified standard governed here—it dismissed the case on a narrower ground—the Drakes decision nevertheless offers a roadmap for how Delaware courts are likely to approach fiduciary challenges to PBC change-of-control transactions.
Background
MPower Financing, PBC (“MPower” or the “Company”), a Delaware PBC, provides student loan financing in the United States by raising capital from banks and other lenders. By late 2024, MPower appeared to be trending toward profitability, but by early 2025, it faced short-term liquidity issues. Under its existing debt covenants, it was required to maintain a certain minimum cash balance by January 31, 2025. After it failed to raise capital, two of its existing lenders, Tilden Park Capital Management, L.P. (“Tilden”) and King Street Capital, L.P. (together with Tilden, the “Funds”), stepped in.
The Funds collectively held nearly $109 million of MPower’s debt and owned approximately 25.5% of its common stock. Tilden, moreover, had two designees on MPower’s board. The Funds initially proposed a term sheet offering $15 million in immediate financing and then—one day before MPower’s debt-covenant compliance deadline—they raised the offer to $20 million, together with a provision allowing them to convert their debt holdings into equity. Such a conversion would allow the Funds collectively to own nearly 85% of the Company’s stock, and the conversion price represented a discount to the per-share value implied by MPower’s most recent financing round.
MPower’s board (without the two Tilden designees, who recused themselves) voted to approve the modified proposal on a non-exclusive basis and formed a three-member Special Committee to evaluate the proposal. The Special Committee retained its own independent legal counsel and financial advisor, instructed the advisor to search for alternative, comparable deals with less dilution, and opened a data room to solicit competing term sheets.
The Special Committee approved the transaction, and no stockholder vote was held. MPower then entered into an Exchange Agreement, under which the Funds would lend the Company roughly $28 million and could convert their debt holdings into equity, diluting other stockholders’ aggregate ownership from 74.5% to 15%, and a Governance Agreement granting the Funds the right to appoint a majority of the board and veto a range of corporate actions.
The plaintiffs, current and former stockholders of the Company, sued the Special Committee members for breach of fiduciary duty (Count I) and the Funds for aiding and abetting that purported breach (Count II). The defendants moved to dismiss the complaint.
The Decision
A. Standard of Conduct: No Price-Maximization Mandate for PBC Directors
The Court’s Order began with the familiar distinction between a standard of conduct (what directors are expected to do) and a standard of review (the Court’s test for whether directors met that standard). For directors of a traditional corporation, the standard of conduct in a change-of-control scenario requires a singular focus on stockholder value maximization. For directors of a PBC, however, DGCL § 365(a) requires the board to manage the corporation in a manner that balances three interests: (i) the pecuniary interests of stockholders, (ii) the best interests of those materially affected by the corporation’s conduct, and (iii) the specific public benefit identified in the corporation’s charter. Recognizing that prior Delaware decisions are “less than clear” on whether Revlon imposes a standard of conduct or a standard of review, the Court concluded that, to the extent Revlon is understood as a “standard of conduct” requiring directors to obtain the best price reasonably available, it does not apply to PBC directors because it would contradict their statutory balancing mandate.
B. Standard of Review: “PBC Enhanced Scrutiny” May Still Apply
The Court was careful, however, not to exempt PBC boards from heightened review altogether. It observed that the “‘enormous implications’ inherent in a change-of-control transaction do not vanish simply because a corporation is a [PBC].” Understood as a “standard of review,” the Court noted that “PBC enhanced scrutiny” may still apply. Such a standard might ask whether the directors’ actions in balancing the interests required under Section 365(a) fell outside the “range of reasonableness.” The Court expressly declined to decide whether that standard controlled, however, because the plaintiffs failed to plead facts sufficient to rebut Section 365(b)’s safe harbor, discussed below.
C. Section 365(b)’s Safe Harbor Supported Dismissal
Section 365(b) of the DGCL provides that, with respect to a decision implicating Section 365(a)’s balancing requirements, a PBC director “will be deemed to satisfy” his or her fiduciary duties if the decision is (i) both informed and disinterested, and (ii) “not such that no person of ordinary, sound judgment would approve.” Delaware courts have concluded that plaintiffs bear the burden to plead facts supporting a reasonable inference that either of the two safe harbor prongs are not met. Here, the Court concluded that plaintiffs failed to do so.
Regarding the first prong, the Court observed that plaintiffs had conceded that the Special Committee members were disinterested, so its analysis turned on whether the directors were “informed.” The Court questioned whether the “informed” inquiry should be evaluated under the business judgment rule (asking whether directors acted with gross negligence) or under enhanced scrutiny (asking whether their efforts to inform themselves fell outside the range of reasonableness), but concluded that the plaintiffs’ claim failed under either. The plaintiffs did not plead any facts to show gross negligence, and under enhanced scrutiny, the Court reasoned that because PBC directors must balance three discrete interests under Section 365(a), a plaintiff must plead facts showing the directors failed to inform themselves as to all three of those interests—not just price (i.e., stockholders’ pecuniary interests). Here, the complaint spoke only to the directors’ alleged failure to canvass the market more thoroughly, to maximize value. The plaintiffs’ belated argument that “no balancing occurred” of the delineated interests fared no better, as it appeared for the first time in their answering brief and was conclusory.
The Court then turned to the second prong—whether the decision was “such that no person of ordinary, sound judgment would approve”—and concluded the pertinent question was whether the decision sounded in waste, an “extreme and rarely satisfied” standard requiring that the Company receive essentially nothing in exchange. Because MPower indisputably received necessary short-term financing and the plaintiffs did not attempt to plead waste, plaintiffs failed to rebut this prong as well.
Having found the Section 365(b) safe harbor unrebutted, the Court held the Special Committee was “deemed to satisfy” its fiduciary duties, and dismissed Count I of the complaint.
D. No Derivative Aiding and Abetting Liability
The Court of Chancery then analyzed the plaintiffs’ aiding and abetting claim (Count II), which alleged that the Funds knowingly participated in the Special Committee’s alleged fiduciary breach. Because a predicate breach is a necessary element of an aiding-and-abetting claim, and because no such breach had been adequately pleaded, the Court dismissed Count II as well.
Key Takeaways
Drakes’ first-impression conclusions regarding PBC directors’ fiduciary obligations offer several important lessons for PBC boards, investors, and practitioners alike.
First, boards should not read Drakes as an invitation to abandon process. Here, the Special Committee’s disinterestedness, retention of its own counsel and advisor, and market check for alternative transactions featured prominently in the outcome. Independent special committees, independent advisors, and a thoroughly documented process remain valuable protections.
Second, Section 365(b)’s safe harbor is a powerful tool. Because PBC directors must inform themselves of a broad set of interests, a complaint that attacks only the price obtained in a change-of-control transaction, without addressing the other Section 365(a) interests, may not suffice. And under the safe harbor’s second prong, a plaintiff challenging a PBC financing that supplies genuine value likely faces an uphill challenge.
Third, the decision highlights a structural feature that distinguishes Section 365(b)’s safe harbor from others in the DGCL. Because Section 365(b) deems protected directors to have satisfied their fiduciary duties, it can foreclose both a direct claim against protected directors and a derivative aiding-and-abetting claim against another transaction party. PBC leadership and transaction planners should keep that broader reach in mind when structuring deals and assessing litigation risk.
Fourth, and finally, the Court of Chancery confirmed that Revlon does not saddle PBC directors with a single-minded duty to maximize price in a change-of-control transaction, and instead explained that their standard of conduct is governed by the interest-balancing mandate of DGCL § 365(a).
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
