The proposed amendments to Section 144 of the DGCL would provide safe harbor procedures for transactions in which directors, officers, or a controlling stockholder (or a controlling stockholder group) have potential conflicts of interest that, under present law, may cause a transaction to be subject to judicial review under the entire fairness standard.
In sum, the proposed amendments provide that directors', officers', or controlling stockholders’ potential divergent interests in transactions do not give rise to claims for equitable relief or damages, provided that
- The material facts as to the person’s interest in and involvement in the transaction, including any such potential conflicts, are disclosed, and
- The transaction is approved in good faith by an informed majority of the disinterested directors or an informed majority of the disinterested stockholders.
For controlling stockholder going private transactions, both procedural steps – i.e., informed disinterested director and stockholder approval – must be followed to render the transaction protected. Alternatively, the amendments recognize that such transactions may also not result in breaches of fiduciary duties if they are shown to be fair to the corporation. The proposed amendments also define when a person may be found to be a controlling stockholder or a member of a control group, primarily by reference to ownership or control of certain percentages of the corporation’s voting stock.
The proposed amendments also would change Section 220 of the DGCL, which concerns stockholders’ rights to inspect the corporation’s “books and records", to define certain types of documents that are subject to production in response to a stockholder’s books and records demand. The materials identified include, among other things, the certificate of incorporation and bylaws, stockholder agreements binding the corporation, board, and committee minutes, as well as materials presented, and annual financial statements.
The amendments provide that, in the absence of those types of documents, the Delaware Court of Chancery may order the corporation to provide such other types of documents on that subject matter as may be necessary and essential to satisfy the stockholder’s proper purposes for inspection.
On March 3, 2025, the Council of the Delaware State Bar Association’s Corporation Law Section recommended certain changes to the text and synopsis of the proposed amendments, which were approved at a Corporation Law Section meeting on March 10, 2025. Those changes include stating the amendments are intended to apply retroactively, except they do not govern cases that were pending or completed on or before February 17, 2025, the date the proposed amendments were announced. A copy of the Council’s recommended changes is available here. Following additional consideration in Delaware's Senate, changes were made to state also that the amendments do not apply to books and records demands made prior to February 17, 2025.
Delaware's Senate has approved the amendments. If they are approved by Delaware's House of Representatives, they will go to Delaware’s Governor for his consideration.
The proposed amendments to Section 144 of the DGCL would provide safe harbor procedures for transactions in which directors, officers, or a controlling stockholder (or a controlling stockholder group) have potential conflicts of interest that, under present law, may cause a transaction to be subject to judicial review under the entire fairness standard.
legis.delaware.gov/..
