As previously discussed here, Delaware enacted legislation that prohibits corporations from adopting charter or bylaw provisions that shift a corporation’s legal costs to stockholders who are unsuccessful in litigation with respect to internal corporate claims. At the same time (both became law on August 1, 2015), it also enacted legislation that Delaware corporations may adopt bylaws requiring that internal corporate claims must be filed exclusively in Delaware.
Amendments to the Delaware General Corporation Law
Several significant amendments to the Delaware General Corporation Law (the DGCL) were signed into law on June 16, 2016, and went into effect on August 1, 2016.1 Most significantly, these amendments:
A recent Cornerstone Research report reviewed ‘Shareholder Litigation Involving Acquisitions of Public Companies’ during 2015 and the first half of 2016. As the report indicates. the percentage of M&A deals valued over $100 million and challenged by shareholder litigation dropped below 90 percent in 2015 (84 percent) and in the first half of 2016 (64 percent) for the first time since 2009. The main reason for the decline is likely the rejection of a disclosure-only settlement by the Delaware Chancery Court in the Trulia case in January 2016.
Last week the New York Court of Appeals rendered an important decision involving going-private transactions in which a controlling shareholder offers to buy out the public shares. The high court announced that “New York courts should apply the business judgment rule as long as certain shareholder-protective conditions are present; if those measures are not present, the entire fairness standard should be applied.”1
Amendments to the DGCL
Several significant amendments to the Delaware General Corporation Law (DGCL) were signed into law on June 24, 2015, and will go into effect on August 1, 2015. Most significantly, these amendments:
- Prohibit fee-shifting – After the revised Sections 102 and 109 take effect, any provisions in the certificates of incorporation or bylaws of Delaware corporations that would seek to “fee shift,” or impose liability on a stockholder for attorneys’ fees or expenses of the corporation (or anyone else) in connection with “internal corporate claims” (e.g., breaches of fiduciary duties) will be prohibited.1
- Authorize Delaware forum selection clauses – In the new Section 115, the DGCL (1) expressly authorizes the inclusion of Delaware exclusive forum provisions for internal corporate claims in the certificates of incorporation or bylaws of Delaware corporations and (2) prohibits provisions in such certificates of incorporation or bylaws that would disallow bringing internal corporate claims in Delaware.2
This month, Duff & Phelps published its 2015 Fairness and Solvency Opinions Report, covering six recurring transaction structures often pursued by our clients. Why are certain transaction types prevalent? We believe the seeds were planted when the financial crisis unleashed massive deflationary forces across the globe. The relentless efforts of the Fed (and other central banks) to stimulate growth with unprecedented monetary easing have driven interest rates to historic lows. These two macro trends – stagnant growth and low interest rates – are contributing factors to several transactions we discuss in the report, as listed below. To access the report, click here.
- Corporate Spin-Off Transactions
- Master Limited Partnerships (MLPs) and YieldCos
- Real Estate Roll-up Transactions
- Going-Private Transactions for Chinese Companies
- Dividend Recaps
- Affiliate Party Transactions
As previously discussed here, the Delaware Senate had already approved legislation that would prohibit corporations from adopting charter or bylaw provisions that shift a corporation’s legal costs to stockholders who are unsuccessful in litigation with respect to “internal corporate claims.” Now, that legislation (S.B. 75) has, easily and without much discussion, been passed by the Delaware House of Representatives. The legislation will now go to Delaware’s governor. Given the relatively easy road the bill has taken in reaching the ’governor’s office (notwithstanding some very vocal opposition to it), it seems likely the governor will sign it, after which it will become law.
Last week, the Delaware Senate, in response to a prior Delaware Supreme Court ruling that was previously discussed here, voted to approve legislation that would prohibit corporations from adopting charter or bylaw provisions that shift a corporation’s legal costs to stockholders who are unsuccessful in litigation with respect to an “internal corporate claim” (defined in the legislation as “claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery”).
Also worthy of note, the legislation provides that “the certificate of incorporation or the bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in this State, and no provision of the certificate of incorporation or the bylaws may prohibit bringing such claims in the courts of this State.” The legislation, which, as previously discussed here, has been controversial, is now headed to the Delaware House of Representatives where it will, no doubt, be the subject of much discussion and debate.