Tag: Delaware General Corporation Law Section 122(18)

Delaware SB 313, controversial proposed corporate law amendments, heads to Governor for signature

What’s the latest on SB 313, the proposed amendments to the Delaware General Corporation Law largely designed to address the outcome of the decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company? That case invalidated portions of a stockholder agreement relinquishing to a founding stockholder control over certain corporate governance matters, a decision that many practitioners viewed as inconsistent with current market practice. The proposed amendments in SB 313 would add a new subsection (18) to Section 122 of the DGCL to allow corporations to enter into the types of stockholder contracts at issue in Moelis, even if the provisions are not set forth in a certificate of incorporation.  As discussed in this PubCo post and this PubCo post, those proposed amendments have turned out to be highly contentious: a number of academics and jurists, including Delaware Chancellor Kathaleen McCormick in a seven-page letter to the Delaware State Bar Committee, raised objections to the haste and timing (prior to adjudication of an appeal by the Delaware Supreme Court) of the legislation. And Law360 reports that posts by Vice Chancellor Travis Laster (purportedly not acting as vice chancellor) questioned “S.B. 313’s terms” and contended that “[c]laims by critics that the Moelis decision put thousands of agreements at risk, the vice chancellor wrote, ‘smacks of hyperbole.’” Adding even more fuel to the fire was a letter submitted to the Delaware legislature, posted on the Harvard Law School Forum on Corporate Governance, by a group of over 50 law professors in opposition to the amendments, along with these separate posts by noted academics on the HLS Forum and on the CLS Blue Sky blog, with this lonely post in favor. But the bill then “sailed through” the Delaware Senate “without debate or an opposing vote,” on to the Delaware House. (See this PubCo post.)  The bill has now passed the House and been forwarded to the Governor for signature—but not without some acrimony.