October 4, 2018

No Reg 14C Information Statement for Shareholder Consent Action?

Many companies assume that, because of Exchange Act  Rule 14c-2, they’ll at least have 20 days before any shareholder written consent action becomes effective.  This Cleary Gottlieb blog says that this is likely a mistaken assumption – at least insofar as it relates to actions taken unilaterally, without corporate involvement.

During the course of the dispute between CBS & National Amusements Inc. (NAI), its majority shareholder, NAI adopted a bylaw amendment designed to thwart proposed board action involving the issuance of a dilutive dividend.  CBS filed a preliminary information statement with the SEC that stated that under Rule 14c-2, the new bylaw wouldn’t become effective until 20 calendar days after the information statement was sent to shareholders.

This excerpt lays out what transpired during the Staff’s review of the filing:

NAI argued in a letter to the SEC staff that Rule 14c-2 was inapplicable to the Bylaw Amendments and that, even if it were applicable, it would not delay the effectiveness of the Bylaw Amendments because Section 14(c) of the 1934 Act and Rule 14c-2 do not preempt Section 228 of the Delaware General Corporation Law (“DGCL”).

The SEC staff, in its initial comment letter to CBS regarding the preliminary proxy statement asked for the basis of the statement in the preliminary information statement that the Bylaw Amendments could not become effective under SEC rules until 20 calendar days after distribution of the information statement to stockholders. The staff also requested CBS’s analysis as to whether and how Section 14(c) and Rule 14c-2 preempt Delaware law with respect to the effectiveness of the Bylaw Amendments. Following receipt of CBS’s response, the staff stated in a subsequent comment letter that they had no further comments but they concluded that “we are unable to agree with the legal conclusions” set forth in CBS’s response.

The blog discusses the possible reasons for the Staff’s position – which include the plain language of the rule itself, prior no-action positions, and policy & state law considerations.

John Jenkins