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March 2015

  

Significant Amendments to Delaware General Corporation Law

 
 
 

  

     

  

 
 

For more information on this alert, please contact:

  

Jonathan K. Henderson

Practice Area Chair

Author

214.397.0016

Email | Bio

  

R. Montgomery Donaldson

Author

302.252.0923

Email | Bio

  

Additional Corporate and Transactional Leaders:

  

Jacob W. Bayer, Jr.

Practice Area Vice Chair

816.374.0555

Email | Bio

  

Phillip P. Guttilla

Practice Area Vice Chair

602.650.2327

Email | Bio

  

  

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Those affiliated with or representing a Delaware business entity – in particular, a Delaware corporation – should be mindful of several significant proposed amendments to the Delaware General Corporation Law ("DGCL"), which, if enacted, could become effective as early as August 2015. Three of the more prominent proposals are:

  • Shareholder Fee-Shifting: Proposed Amendments to 8 Del. C. §§ 102, 109 and 115. By far the most controversial of the proposals, these amendments (the precursors of which were thrust into the legislative machinery last year) essentially ban charter or bylaw provisions that would shift responsibility for legal fees or expenses to shareholder plaintiffs who unsuccessfully litigated an "intracorporate claim." Proponents of the legislation maintain that, in the wake of the widely-publicized holding in ATP Tour Inc. v. Deutscher Tennis Bund, et al., 91 A.3d 554 (Del. 2014) (upholding nonstock membership corporation bylaw provision requiring payment of fees and expenses by members who pursued litigation that did not substantially achieve "the full remedy sought"), this measure is necessary to maintain the balance between the considerable latitude generally given to Delaware corporations to self-govern and, on the other hand, the ability of shareholders to meaningfully enforce the duties and obligations owed to them and the enterprise. View the proposed legislation here. You also may view the explanatory memorandum(*) prepared by the Council of the Corporation Law Section of the Delaware Bar Association here.
  • Limitation of Charter and By-Law Forum Selection Provisions: Proposed Amendment to 8 Del. C. § 115. This amendment confirms, as held in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.2d 934 (Del. Ch. 2013), that the charter or bylaws of a Delaware corporation may specify, consistent with applicable jurisdictional requirements, that claims arising under the DGCL, including claims of breach of fiduciary duty by current or former directors or officers, controlling stockholders or aiders and abettors, must be brought only in the courts (including the federal court) in Delaware. The amendment invalidates, however, provisions selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts. The latter effectively reverses the recent holding in City of Providence v. First Citizens Bancshares, Inc. et al., CA No. 9795-CB (Ch. Ct. Sept. 8, 2014), in which the Court of Chancery upheld a forum selection provision in the bylaws of a Delaware bank holding company designating a non-Delaware court system as the exclusive venue for litigating intracorporate disputes. View the proposed legislation at the hyperlink above.
  • Limitation of Appraisal Rights to Limit "Appraisal Arbitrage": Proposed Amendment to 8 Del. C. § 262. Two changes to the appraisal statue are proposed. The first (the "de minimus" exception) applies to shares traded on a national securities exchange, and forecloses appraisal unless (i) the total number of shares entitled to appraisal exceeds 1% of the outstanding number of shares that could have sought appraisal; or (ii) the value of the merger consideration for the total number of shares entitled to appraisal exceeds $1million; or (iii) the merger was approved pursuant to 8 Del. C. § 253 or § 267. The second change provides an option to the surviving corporation to pay to the appraisal stockholders a sum of money, the amount left to the sole discretion of the surviving corporation, any time before judgment is entered in the appraisal proceeding, thereby eliminating the need to pay subsequently accruing interest on that sum. The proposed amendments to Section 262 may be viewed here. You also may view the explanatory memorandum(*) prepared by the Council of the Corporation Law Section of the Delaware Bar Association here.

Polsinelli is monitoring these and other developments in Delaware business law and will furnish updates on significant developments in future e-alerts.

For More Information

For more information about this alert, please contact the authors, a member of Polsinelli's Corporate and Transactional practice, or your Polsinelli attorney.

  


* These memoranda are posted for informative purposes only; they do not necessarily reflect the views of, nor should they be construed as legal advice from, Polsinelli P.C.

 
 

  

     

  

 

 

  

     

  

 
 

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* Law360, March 2014
** The American Lawyer 2013 and 2014 reports

  

 
 

  

     

  

 
 

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