Tag: safe harbor for conflicted transactions
Delaware SB 21 signed into law
Controversial Delaware SB 21 was signed into law last evening after passage yesterday by the legislature. According to this Statement from the office of Delaware Governor Matt Meyer, the Governor has “signed Senate Bill 21 into law, thanking lawmakers for the swift passage of this critical update to Delaware’s corporate law, aimed at ensuring the state remains the premier home for U.S. and global businesses. The legislation, developed in collaboration with corporate leaders and legal experts, clarifies key governance structures to reinforce Delaware’s reputation for equitable, predictable, and efficient corporate oversight.” The law provides a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. It also addresses Delaware’s provisions related to books and records. (For a brief summary of the bill, see this PubCo post.) Notably, the legislature rejected five proposed amendments, including a proposed amendment discussed in this PubCo post, providing for an opt-in provision. The legislature also rejected a proposed amendment that would have eliminated the February 17 retroactive effective date.
Will an opt-in mechanism resolve the melee over Delaware’s controversial SB 21?
As widely reported, the Delaware legislature has responded to increasing chatter and speculation about the intentions of some companies—as well as action in some cases—to change their states of incorporation from Delaware to other states by proposing new legislation, Senate Bill 21. That proposed bill would offer a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. The bill would also address Delaware’s provisions related to books and records. (For a brief summary of the bill, see this PubCo post.) At this point, the bill has passed the State Senate and been reported out of the Judiciary Committee in the Delaware House. As you probably know, however, SB 21 has been quite contentious. Now, a group of 26 corporate law and governance professors from universities worldwide—apparently representing a broad spectrum of political opinion—have submitted a letter proposing a “pragmatic solution that simultaneously renders much of the debate moot and aligns with Delaware’s longstanding commitment to contractarianism: an opt-in mechanism.” An amendment providing for that opt-in has been introduced.
New Delaware bill would offer safe harbor for conflicted transactions—will it convince companies to stay put in Delaware?
As discussed earlier this month, there has been a lot of chatter and speculation recently about companies changing their states of incorporation from Delaware to other states. In an interview with Business Insider, the new Governor of Delaware acknowledged that the state remained a “‘competitive environment’” and that “his state needed to take challenge seriously,” including addressing “issues such as the balance of shareholder and management rights….I think within the coming weeks, you’re going to see some things rolled out that will help move our state forward and bring us into 2025 and beyond to make sure we’re protecting and growing the corporate franchise.” A new bill designed to take up that challenge in a significant way—Senate Bill 21—was introduced in Delaware on Monday and is awaiting consideration by the Judiciary Committee. In essence, the bill would offer a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. The bill would also address Delaware’s provisions related to books and records. The impact could be fundamental.
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