DealLawyers.com Blog

In the latest addition to the ongoing debate over proposed 2024 amendments to the DGCL, a group of prominent law professors recently submitted a letter to the Delaware Legislature opposing the proposed changes to Section 122(18) of the DGCL intended to address the Chancery Court’s decision in the Moelis litigation invalidating certain governance provisions contained in a stockholders agreement. This excerpt provides the gist of their concerns:

The Proposal would do more than simply overturn Moelis. It would allow corporate boards to unilaterally contract away their powers without any shareholder input. It would also exempt such contracts from Section 115, thereby creating a separate class of internal corporate claims—including claims of breach of fiduciary duty—that could be arbitrated and decided under non-Delaware law. These would be the most consequential changes to Delaware corporate law of the 21st century, and they should not be made hastily—if at all.

Proponents of the Proposal argue that the Moelis decision struck down a common practice of Delaware corporations and that the Proposal merely restores the status quo ante. Not so. The contract in Moelis was far from typical, especially for public corporations, and the Moelis decision only held that certain of its provisions contravened the board-centric model of governance codified in Section 141(a). Those provisions could only be adopted in the corporate charter, and thus only after a majority of shareholders—who invested in reliance on Section 141(a)—gave their approval.

The professors argue that instead of “hastily rewriting the rules,” the better path would be to wait for the Delaware Supreme Court to weigh-in on the issues raised by the Moelis decision.

– John Jenkins