In re the Chemours Company Derivative Litigation, Vice Chancellor Glasscock recently wrestled with an apparent conflict between two provisions of the Delaware General Corporation Law (DGCL)—and chose the path that protects directors. Vice Chancellor Glasscock refused to hold directors strictly liable for negligent stock repurchases or dividends—which would be inconsistent with Delaware’s general limitation on director liability solely to damages for gross negligence (unless exculpated) or loyalty breaches—and instead enforced an “incongruent” provision that accords directors protection where they rely on corporate records, officers, or experts with respect to corporate surplus available to repurchase shares or issue dividends. (more…)
On November 17, 2021, the U.S. Securities and Exchange Commission (SEC) adopted new Rule 14a-19 and amendments to existing rules under the Securities Exchange Act of 1934 to require the use of “universal” proxy cards in all nonexempt director election contests at publicly traded companies in the U.S. The new “Universal Proxy Rules” contain only slight modifications from rules the SEC first proposed in October 2016, for which the SEC reopened the public comment period during 2021. The rules will take effect for shareholder meetings after August 31, 2022. We expect a significant increase in proxy contest threats once the Universal Proxy Rules go in effect. (more…)
In a November 9 letter decision, Vice Chancellor Will denied a motion filed by a company’s former directors to obtain its privileged information. The decision highlights an exception to the rules governing a former director’s right to access their former company’s privileged information: access will be denied where the former director is seeking the information to pursue an individual damages claim against the company. (more…)
Life is getting harder for boards of directors of public companies. Increased scrutiny of companies — particularly in heavily regulated industries — has led to greater risk of criminal and civil liability. And recent Delaware cases have ratcheted up the pressure, allowing lawsuits to proceed against boards for failure of oversight. What should directors know about their oversight responsibilities? And what can boards do to mitigate their risk? Our latest episode of The Sidley Podcast grapples with those questions and many others. Join host and Sidley partner, Sam Gandhi, as he speaks with two of the firm’s thought leaders on the subject — Holly Gregory and Dr. Paul Kalb.
The Delaware Chancery Court recently issued a rare preliminary injunction delaying the shareholder vote on a proposed merger between QAD, a cloud-based enterprise software company, and the private equity fund Thoma Bravo. The Court required additional disclosures to shareholders but stopped short of enjoining the deal entirely. The case provides useful guidance on conflicts-related disclosure where a controlling shareholder and minority shareholders are “competing” for consideration from a third-party acquirer. It also highlights Delaware’s reluctance to enjoin a transaction that offers shareholders a premium in the absence of a rival bidder, leaving post-closing damages claims as the sole remedy for shareholders who believe the deal involved contractual or fiduciary duty violations. (more…)
On September 13, 2021, over a rare dissent, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of a petition for appraisal filed by minority stockholders (the “Petitioners”) of Delaware corporation Authentix Acquisition Company, Inc. (“Authentix”). The high court agreed that the Petitioners could waive the statutory right to an appraisal through provisions in a stockholder agreement (the “Stockholders Agreement”). Significantly, this ruling may open the door for corporations to contractually waive other permissions portions of the Delaware General Corporation Law (“DGCL”). (more…)
On October 13, 2021, Vice Chancellor Joseph R. Slights III issued a post-trial decision affirming the CytoDyn Inc. board of directors’ decision to reject a stockholder nomination of directors for failure to supply information required by the company’s advance notice bylaw. This is the first decision from a Delaware court addressing informational deficiencies in such a nomination notice, and provides important guidance for the many public companies with similar bylaws. (more…)