This amendment clarifies that approval by a disinterested board or committee may have cleansing effect only if the board or committee's approval is uncoerced.

Plain English Breakdown

Checked against official source text during the last sync.

Amendment on Board Approval Rules

This amendment clarifies that a board or committee's approval can only fix legal problems with company deals if the approval was free from pressure, each member is truly independent, and they negotiate directly rather than just watching others.

What This Bill Does

• Requires that any approval by a disinterested board or committee must be uncoerced to have a cleansing effect on transactions.
• States that courts must determine if every member of a special committee is disinterested when most directors are conflicted or in controlling stockholder transactions.
• Mandates that committees negotiating for minority stockholders must do the work themselves instead of just overseeing negotiations run by others.
• Removes unclear words like 'heightened presumption' and 'substantial facts' to match current court rules.

Who It Names or Affects

• Company boards of directors
• Special committees within companies
• Courts reviewing company transactions

Terms To Know

Cleansing effect

A legal result where a board's approval fixes problems with how a deal was made.

Disinterested

Having no personal financial gain or conflict in the decision being made.

Controlling stockholder transaction

A business deal involving a person who owns enough shares to control the company.

Limits and Unknowns

• This amendment was defeated by the House of Representatives and did not become law.
• The text does not state when or if this rule would take effect since it failed in voting.

Official Summary Text

This amendment clarifies that approval by a disinterested board or committee may have cleansing effect only if the board or committee's approval is uncoerced. This codifies the approach in, among other cases, In re Dell Techs. Inc. Class V Stockholders Litig., 2020 WL 3096748, at *34 (Del. Ch. June 11, 2020), Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *16 (Del. Ch. July 26, 2018), and Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110, 1120 (Del. 1994).

Second, the amendment clarifies that for a committee's approval to have cleansing effect when a majority of the board is conflicted or the transaction is a controlling stockholder transaction, the Court must determine that each member of the committee is disinterested.

Third, the amendment clarifies that in order for a disinterested committee to cleanse a controlling stockholder transaction, the committee must negotiate on behalf of the company or minority stockholders, not merely oversee negotiations run by another person or entity (who might themselves be conflicted).

Fourth, the amendment deletes vague and undefined phrasing in SS1 to SB21 regarding a "heightened" presumption and a requirement that facts rebutting such presumption be "substantial" as these terms are unknown to current Delaware case law and would heighten uncertainty and unpredictability. As modified, the bill would still impose a rebuttable presumption of disinterestedness for directors who satisfy the exchange listing standards and would require particularized facts to rebut that presumption.

Current Bill Text

Legislation Document

SPONSOR:

Rep. Wilson-Anton

HOUSE OF REPRESENTATIVES

153rd GENERAL ASSEMBLY

HOUSE AMENDMENT NO. 7

TO

SENATE SUBSTITUTE NO. 1

FOR

SENATE BILL NO. 21

AMEND Senate Substitute No. 1 for Senate Bill No. 21 by deleting line 19 in its entirety and inserting in lieu thereof the following:

“

directors,

and the board or

committee in good faith

committee, uncoerced, in good faith, and without gross negligence,

authorizes the

contract

act

or”.

FURTHER AMEND Senate Substitute No. 1 for Senate Bill No. 21 on line 24 by deleting "

the board of directors has determined to be

" and inserting in lieu thereof “

is

”.

FURTHER AMEND Senate Substitute No. 1 for Senate Bill No. 21 on line 38 by deleting "

(or oversee the negotiation of)

" as it appears therein.

FURTHER AMEND Senate Substitute No. 1 for Senate Bill No. 21 on line 40 by deleting "

a majority

" and inserting in lieu thereof "

an uncoerced majority

".

FURTHER AMEND Senate Substitute No. 1 for Senate Bill No. 21 on lines 41 and 42 by deleting “

the board of directors has determined to be

” and inserting in lieu thereof “

is

”.

FURTHER AMEND Senate Substitute No. 1 for Senate Bill No. 21 by deleting line 64 and inserting in lieu thereof the following:

“

presumption may be rebutted by particularized facts that such director has

”.

FURTHER AMEND Senate Substitute No. 1 for Senate Bill No. 21 on line 68 by deleting “

shall not, of itself, be evidence

” and inserting in lieu thereof “

shall not, by itself, establish

”.

SYNOPSIS

This amendment clarifies that approval by a disinterested board or committee may have cleansing effect only if the board or committee's approval is uncoerced. This codifies the approach in, among other cases, In re Dell Techs. Inc. Class V Stockholders Litig., 2020 WL 3096748, at *34 (Del. Ch. June 11, 2020), Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *16 (Del. Ch. July 26, 2018), and Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110, 1120 (Del. 1994).

Second, the amendment clarifies that for a committee's approval to have cleansing effect when a majority of the board is conflicted or the transaction is a controlling stockholder transaction, the Court must determine that each member of the committee is disinterested.

Third, the amendment clarifies that in order for a disinterested committee to cleanse a controlling stockholder transaction, the committee must negotiate on behalf of the company or minority stockholders, not merely oversee negotiations run by another person or entity (who might themselves be conflicted).

Fourth, the amendment deletes vague and undefined phrasing in SS1 to SB21 regarding a "heightened" presumption and a requirement that facts rebutting such presumption be "substantial" as these terms are unknown to current Delaware case law and would heighten uncertainty and unpredictability. As modified, the bill would still impose a rebuttable presumption of disinterestedness for directors who satisfy the exchange listing standards and would require particularized facts to rebut that presumption.