The Court of Chancery Breaks New Ground in Allowing “Reverse” Veil Piercing
In a matter of first impression, Vice Chancellor Joseph R. Slights III recently concluded in Manichaean Capital, LLC v. Exela Technologies, Inc. that Delaware law permits a claim for “reverse” veil-piercing — that is, going after the assets of a subsidiary as opposed to a parent corporation. The decision provides a limited yet potentially powerful tool for those seeking to enforce judgments in the context of complex corporate structures, particularly where a corporate family has taken steps to limit assets flowing through the subsidiary that is liable. It also provides occasion to remind business entities of the attendant risks of failing to respect corporate separateness and form.
Delaware Court of Chancery Will Evaluate Third-Party Sales of Controlled Companies Under the Enhanced Scrutiny Standard of Review
The Delaware Court of Chancery recently held that a stockholder plaintiff pleaded facts sufficient to support a reasonable inference that a target company’s board of directors could have achieved a higher deal price had the company’s financial advisor not, unbeknownst to the board, tipped the buyer about the price of another bid during the sale process.
Court of Chancery Allows Breach of Fiduciary Duty Claims Stemming from CBS-Viacom Merger to Proceed
On December 29, 2020, in a 76-page memorandum opinion, the Court of Chancery denied a motion to dismiss breach of fiduciary duty claims against National Amusements, Inc. (NAI), Viacom Inc.’s controlling stockholder; Shari Redstone, the director, president, and controlling stockholder of NAI; and four individual NAI directors. All were sued for their roles in the Viacom/CBS Corp. merger in a decision that is important for mergers in which a controlling party stands on both sides of a transaction and receives nonratable benefits that are measured in terms of control, rather than based on merger consideration.
Court of Chancery Invokes Rarely Successful “Fraud-on-the-Board” Theory, Permitting Duty of Loyalty Claims to Proceed
The Court of Chancery recently allowed to proceed post-closing claims that a merger was completed at an inadequate price, premised largely on allegations that the Company’s CEO and chairman was conflicted and tilted the process in favor of the buyer. This decision serves as a reminder for fiduciaries considering end stage transactions — including the Court’s reminder that “the sins of just one fiduciary can support a viable Revlon claim.”
Delaware Supreme Court Revives Stockholder Suit Challenging CEO’s Failure to Disclose Proposed Post-Merger Compensation Increase to the Board
The Delaware Supreme Court held that the Chancery Court erred in finding that a proposed compensation package that would substantially increase a CEO’s compensation post-merger was not material to the other directors’ approval of the merger.