Category: Delaware Law

Proposed Statutory Officer Exculpation in Delaware

As we transition into spring, the minds of many corporate attorneys return to the annual updates proposed to the Delaware General Corporate Law (DGCL). If the changes proposed by the Council of Corporation Law Section of the Delaware State Bar Association are adopted (as they usually are), they will become effective on August 1, 2022. A few of this year’s proposed changes are of particular significance to officers of Delaware corporations. As currently enacted, Section 102(b)(7) of the DGCL allows...

Delaware is a “Pro-Sandbagging” State

While M&A practitioners have long taken the view that Delaware is a “pro-sandbagging” state, a recent case in the Delaware Court of Chancery has added concrete authority to that position. In Arwood v. AW Site Services (March 9, 2022), the Court found that a buyer was entitled to indemnification stemming from the breaches of certain representations, despite that buyer having effectively prepared the financials and other information that were covered by the reps. “Sandbagging” is the buyer-favorable concept that preserves...

Reverse Veil Piercing

Under Delaware law, the doctrine of “piercing the corporate veil” has traditionally been used only in circumstances where there has been serious misconduct, and in such cases the Delaware courts have only applied this doctrine to put aside the limited liability of an entity in order to hold its equityholders or directors personally liable for the company’s actions or debts. Until recently, the Delaware Chancery Court has not taken on a case where a plaintiff sought to pierce the corporate...

2021 Delaware Entity Statutory Amendments

Consistent with Delaware’s practice of annually amending its entity statutes to meet the needs of the changing business community, the State of Delaware’s Governor recently signed into law the 2021 amendments to Delaware’s Limited Liability Company Act, Revised Uniform Limited Partnership Act, Revised Uniform Partnership Act (the “RUPA”) and General Corporation Law (the “DGCL”). There were no amendments this year to Delaware’s Statutory Trust Act, which is generally amended every other year. This year’s statutory amendments will go into effect...

Mergers Involving Delaware LLCs Don’t Trigger Appraisal Rights – Except When They Do

When parties consider an M&A transaction involving a merger, a factor that is top of mind for counsel is complying with the statutory appraisal procedures afforded to holders of equity in the merging entity who do not consent to the transaction – particularly where it is expected that a portion of the shareholder base will not approve of the transaction. Section 262 of the Delaware General Corporation Law protects shareholders of Delaware corporations who do not consent to a merger...

Chancery Opinion Provides First Delaware Court Guidance on COVID-19’s Impact on MAE Provisions and Ordinary Court Course Covenants

On November 30, 2020, Vice Chancellor Laster of Delaware’s Court of Chancery issued the first case where the pandemic provided a company with the ability to walk away from its contractual obligations in a sale transaction, analyzing both the material adverse effect (“MAE”) provisions and ordinary course covenants. AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC et al., C.A. No. 2020-0310-JTL (Del. Ch. Nov. 30, 2020). The AB Stable case involved the attempted sale by AB Stable...

Delaware Supreme Court Refuses to Apply Corporate Test in Limited Partnership Books and Records Case

The recent Delaware Supreme Court case of Murfey v. WHC Ventures, LLC serves as a reminder that limited partnerships are contractual in nature and therefore in a books and records demand, legal standards applicable to Delaware corporations may not be applicable. In the Murfey case, limited partners of multiple limited partnerships demanded access to Schedule K-1s of other limited partners for the purpose of valuing their partnership interests.  After their access was restricted, the limited partners brought their demand to...

2020 Updates to Delaware Entity Statute

The State of Delaware typically amends its entity statutes annually to ensure that the statutes are state of the art and most effectively meet the needs of the changing business community.  Consistent with this practice, Delaware’s governor recently signed into law this year’s amendments to the Delaware’s Limited Liability Company Act (the “LLC Act”), Revised Uniform Limited Partnership Act (the “LP Act”), Revised Uniform Partnership Act, General Corporation Law (the “DGCL”) and Statutory Trust Act.  Unlike most years when the...

Delaware Court of Chancery Strictly Construes Shareholder Representative Provision, Complicating Discovery from Shareholders

Following a recent Delaware case, buyers in M&A deals should ensure that their purchase agreements adequately provide for access to information from the seller in case of post-closing disputes. In Fortis Advisors, LLC v. Allergan W.C. Holding, Inc., Vice Chancellor Morgan Zurn ruled that if a buyer consents to a single shareholder representative structure in a merger agreement, the buyer cannot later compel the individual selling shareholders’ participation in discovery as parties in interest.[1] The Fortis decision arose out of...

Recent Delaware Case Reinforces That Akorn is the Ceiling Not the Floor for MAE Terminations

2018’s landmark decision Akorn, Inc. v. Fresenius Kabi AG marked the first time that the Delaware Chancery Court upheld a buyer’s use of a Material Adverse Effect (MAE) clause to terminate a merger agreement. However, the Court’s reasoning in the case suggested that the favorable ruling was based on the particularity of the facts and that the general standard for successfully invoking such a clause remains high. The Court’s recent decision in Channel Medsystems v. Boston Sci. Corp confirms the...

State of Delaware Entity Statute Update

The State of Delaware typically amends its entity statutes annually to ensure that the statutes are state of the art and most effectively meet the needs of the changing business community.  Consistent with this practice, this year’s amendments to Delaware’s Limited Liability Company Act (the “LLC Act”), Revised Uniform Limited Partnership Act (the “LP Act”), Revised Uniform Partnership Act and General Corporation Law went into effect on August 1, 2019. Notably, the amendments to each of Delaware’s entity statutes establish...

MAE is MIA No Longer: Delaware Court Upholds Use of “Material Adverse Event” Clause for the First Time

In Akorn, Inc. v. Fresenius Kabi AG, the Delaware Chancery Court held that Fresenius, a German pharmaceutical company, was justified in invoking a “material adverse event” (MAE) clause to terminate its $4.8 billion merger agreement with American generics manufacturer Akorn, Inc.  Although MAE clauses are common in large transactions, Akorn marks the first time that the Chancery Court has upheld a buyer’s use of such a clause to back out of a merger agreement. Nevertheless, the Court’s reasoning suggests that...