On April 6, the Governor of Delaware signed an emergency order applicable to public reporting companies addressing the urgent need of many companies, in light of COVID-19, to change their annual meetings from physical locations to virtual-only formats, including at different dates. The order allowed companies to provide notice of the change by issuing and filing with the SEC a press release instead of complying with the Delaware requirement to send a formal written notice to stockholders or convening the meeting to adjourn, which could be extremely difficult under the current circumstances. (See this PubCo post.) However, the order provided relief only to companies that had already sent out, as of the date of the order, notice of a meeting of stockholders that indicated a physical location. What about companies that sent out their notices after April 6, but still needed to make a change? The relief under the Delaware order was apparently not available to them. Now, the Corporate Law Section of the Delaware State Bar has approved a proposal to amend the DGCL to address this issue. Will the Delaware legislature provide the necessary relief? And if so, when? [Update: this bill was signed into law on July 16.]
The proposed legislation has been in the works for quite a while, even preceding the Governor’s order. Following approval on Tuesday by the Corporate Law Section of the Delaware State Bar, the proposal will next go to the Executive Committee of the State Bar and then the Delaware General Assembly. If approved by the Assembly, the legislation would go to the Governor for signing. But here’s the catch: the Delaware legislature has not been in session as a result of COVID-19 health concerns and a state stay-at-home order. I have been advised that the stay-at-home order may well be extended and that there is no word yet on when the General Assembly will be back in session.
The proposed amendments would “clarify the types of events that give rise to the availability of emergency powers and confirm certain of the specific powers relating to stockholders’ meetings…that may be exercised during an emergency condition.” More specifically, the proposal would amend Section 110 of the DGCL regarding emergency powers and bylaws, identifying “an epidemic or pandemic, and a declaration of a national emergency by the United States government” as among the potential catastrophes expressly covered, and authorizing adoption of emergency bylaws by the board or, if a quorum cannot be readily convened for a meeting, by a majority of the directors present.
The proposed amendments would add to the emergency provisions already identified a provision permitting the board (or, if a quorum cannot be convened, a majority of the directors present) to
“take any action that it determines to be practical and necessary to address the circumstances of such emergency condition with respect to a meeting of stockholders of the corporation notwithstanding anything to the contrary in this chapter or in Chapter 7 of Title 5 or in the certificate of incorporation or bylaws, including, but not limited to, (1) to postpone any such meeting to a later time or date (with the record date for determining the stockholders entitled to notice of, and to vote at, such meeting applying to the postponed meeting irrespective of § 213 of this title), and (2) [for a public reporting company], to notify stockholders of any postponement or a change of the place of the meeting (or a change to hold the meeting solely by means of remote communication) solely by a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to § 13, § 14 or § 15(d) of [the Exchange Act]….No person shall be liable, and no meeting of stockholders shall be postponed or voided, for the failure to make a stocklist available pursuant to § 219 of this title if it was not practicable to allow inspection during any such emergency condition.”
The proposed legislation also addresses delays in dividend payments.
Under the proposal, this provision would be “effective retroactively as of January 1, 2020 with respect any emergency condition occurring on or after such date and with respect to any action contemplated by [the amendments to Section 110] and taken on or after such date by or on behalf of the corporation with respect to a meeting of stockholders held…during the pendency of such condition.”
The synopsis makes clear that the amendments to “are not intended, by implication or otherwise, to limit or eliminate the availability of any powers or emergency actions that are not specifically enumerated with respect to stockholders’ meetings, dividends, or other matters that are practical and necessary in connection with the particular emergency, or to affect the validity of any action taken in an emergency situation but not authorized by the amendments or taken in a non-emergency situation.”