DOVER — In response to concerns expressed by many of Delaware’s corporate stakeholders, including investors, managers, and their legal advisors, a bipartisan coalition of Delaware lawmakers, including all members of legislative leadership, filed legislation Monday to ensure Delaware maintains the balance and consistency that has been the key to its preeminent corporate and legal economy.
Senate Bill 21 addresses specific concerns that lawmakers have received since late January’s flurry of reincorporation announcements regarding the importance of certainty as companies undertake efforts to have unconflicted directors make key corporate decisions.
Reinvigorating a fundamental principle of Delaware law, SB21 clarifies the legal protections a controlling stockholder may earn for a transaction if they first secure the approval of unconflicted directors or unconflicted stockholders. This framework ensures that controlling-stockholder companies have certainty as they plan transactions, while conducting themselves responsibly and with the safeguards for minority stockholders. The legislation provides definitions for whether a director may be considered conflicted and whether a stockholder may be considered a controller. Finally, for the important stockholder tool of books and records requests, SB21 restores the focus of the tool to be on core corporate documents and streamlined summary proceedings.
Upon filing SB 21, the legislation’s prime sponsors Senate Majority Leader Bryan Townsend, Rep. Krista Griffith, Senate Minority Whip Brian Pettyjohn, and House Minority Leader Tim Dukes issued the following joint statement:
“This legislation restores Delaware law to what it was historically known for being: balanced as to the relevant stakeholders, protective of stockholder rights and interests, workable for corporate leaders, and empowering of directors who act in good faith with appropriate process and in accordance with their fiduciary duties. Alongside our heralded Court of Chancery and the exceptional services provided by the Delaware Division of Corporations, the hallmark of Delaware corporate law is that our statute remains balanced and responsive to developments in the market. This legislation continues Delaware on that path.
We are committed to the responsible development of corporate law. Uncertain standards or barriers to responsible options that cause widespread frustration among Delaware companies are not helpful to anyone, especially to the stockholders who would not enjoy the value of Delaware’s legal protections at all if companies feel forced to relocate to less balanced jurisdictions. For the last century, Delaware law and all relevant stakeholders have benefited from our law having balanced protections and being shepherded by expert corporate law practitioners and thoughtful elected officials. That is what this legislation reflects.”
In addition to SB21, the bipartisan coalition of Delaware lawmakers has filed Senate Concurrent Resolution 17, which asks the the Council of the Corporation Law Section of the Delaware State Bar Association to present a report to the Governor and the General Assembly not later than March 31 with recommendations for legislative action, including a fee cap based on lodestar, to help the Delaware Judiciary ensure that awards of attorney’s fees provide incentives for litigation appropriately protective of stockholders but are not so excessive as to act as a counterproductive toll on Delaware companies and their stockholders.
“Delaware is the world’s preeminent center of corporate jurisprudence. Two-thirds of Fortune 500 companies continue to choose Delaware as their legal home. We will protect our reputation and continue Delaware’s tradition of a balanced and measured approach, and we will do so relentlessly,” said Governor Matt Meyer. “Clarity, predictability and fairness remain the hallmark of our franchise. I thank the Legislature for moving swiftly to respond to the evolving needs of the global market. Delaware’s ability to respond quickly again highlights why stockholders across the world repeatedly choose Delaware. As with all proposed updates to our corporate legal code, I respectfully request the Delaware State Bar Association, through its Corporate Law Council, to immediately take up SB21 for review, comment, and recommendation.”
“Delaware’s judiciary remains one of the strongest, most diligent, and most responsive judicial bodies in our nation. Its reputation for excellence has developed over generations, with the best corporate law practitioners from all across the world having contributed to Delaware’s jurisprudence,” said Lawrence Hamermesh, Emeritus Professor at Widener University Delaware Law School. “The framework laid out in SB 21 provides clarity and reassurance to both the corporate and legal community, with a view to promoting predictability and fairly balancing the interest of investors and managers.”
SB 21 has been assigned to the Senate Judiciary Committee, and SCR 17 has been filed for direct action by the full Senate.