Delaware Amendments to the General Corporations Act for COVID-19
On July 16, 2020, the State of Delaware General Corporations Act (DGCL) was amended (the 2020 Amendments) to help Delaware corporations meet the challenges posed by the Novel Coronavirus (COVID- 19). The 2020 changes also make a number of important changes to the DGCL that are unrelated to the challenges presented by COVID-19, including facilitating a company’s ability to convert to a public benefit corporation and perform a holding company merger. Finally, the 2020 amendments limit who constitutes “officers” of a company for the purposes of determining which officers are entitled to mandatory compensation from the company in cases where the officer is successful on the merits or otherwise in the event. the defense of proceedings brought because of such social status of the manager. A summary of the 2020 changes is provided below.
RESPOND TO AN EMERGENCY CONDITION SUCH AS COVID-19
Article 110 of the DGCL previously authorized the board of directors of a company to adopt emergency regulations applicable in the event of an emergency, such as an attack, a nuclear or atomic disaster, a catastrophe or any other situation. similar emergency, as a result of which a quorum of the board of directors or of a committee thereof could not easily be called to act.
However, COVID-19 presented new challenges that Article 110 of the DGCL did not expressly cover. Some of these challenges were urgently resolved on April 6, 2020 when the Governor of the State of Delaware issued an ordinance (the ordinance) authorizing SOEs subject to the reporting requirements of §13 (a) or § 15 (d) of the Securities Exchange Act of 1934 (the Exchange Act) to change the format of a meeting previously noted for a physical location to a virtual meeting only by filing a document with the Securities and Exchange Commission (the SEC) in accordance with Sections 13, 14 or 15 (d) of the Exchange Act and issue a press release.
While the order granted many Delaware corporations interim power to change the format of a meeting of shareholders, the 2020 amendments to Section 110, which come into effect retroactively to January 1, 2020, provide a more effective solution. permed. The 2020 changes expand the definition of an emergency to include an epidemic, a pandemic, and a declaration of national emergency by the United States government and include additional flexibility for a board of directors with respect to assemblies of ‘shareholders, dividends or other matters, which are discussed below.
If a quorum of the board cannot easily be met during an emergency, the board may adopt emergency by-laws or take other practical and necessary action by a majority of the directors present at a meeting.
During any emergency situation, the board of directors may take any action it deems practical and necessary to remedy such emergency situation in relation to a meeting of shareholders, including: (i) postponing a meeting of shareholders, while maintaining the original recording date of such a meeting regardless of the number of days that such meeting is postponed, and (ii) whether a company is subject to the reporting requirements of Article 13 (a) or Section 15 (d) of the Exchange Act, notifying shareholders of a postponement or change in the venue or format of a meeting only by filing a document with the SEC in accordance with the ‘Exchange Act. In addition, if it is not possible to allow inspection of a list of shareholders entitled to vote before or during a meeting of shareholders, the failure of a company to make the list of shareholders available cannot be will result in no personal liability for directors or a meeting of shareholders being postponed or canceled.
The 2020 amendments allow for the registration date and payment date of a dividend declared by a Delaware corporation to be changed during an emergency if the registration date has not yet occurred while the new payment date is within 60 days of the new registration date. . A Delaware corporation that is subject to the reporting requirements of Section 13 (a) or Section 15 (d) of the Exchange Act may notify shareholders of such change only by filing with the SEC in accordance with the Exchange Act. In all cases, the notice must be given as soon as possible after the change of registration date and payment date.
The 2020 Amendments make it easier for a Delaware corporation to become a public benefit corporation and vice versa by lowering the shareholder voting threshold from two-thirds to a majority of the outstanding voting rights for a conventional corporation in order to ( i) amend a certificate of incorporation that converts a conventional corporation into a public benefit corporation or vice versa, and (ii) enact an amalgamation whereby the shares of a conventional corporation are converted into shares of an interest corporation public, or vice versa. The 2020 amendments also eliminate assessment rights in connection with the conversion or merger of a conventional corporation into or into a public utility as of July 16, 2020. In addition, the 2020 amendments reduce risks for persons acting as directors of a public interest company. in several key ways.
Article 365 of the DGCL provides that the directors, in the management of the affairs and affairs of a public interest company, must balance the pecuniary interests of the shareholders, the interests of those who are materially affected by the conduct of the corporation and public benefits identified in the certificate of the corporation of incorporation. The 2020 Amendments provide that a director of a public utility will not be considered interested in such balancing decisions because of their interest in the public utility, unless such ownership is considered a conflict of interest for a traditional company. .
Further, provided a director does not have a conflict of interest, a director’s failure to balance the interests of all stakeholders when making decisions on behalf of the company will not constitute a act or omission of bad faith for the purposes of exoneration or compensation, unless the certificate of incorporation of the company provides otherwise. Finally, the 2020 amendments provide for a higher standard for shareholders to bring an action to enforce the balancing requirements for directors of public benefit corporations. In order to bring an action or breach of duty of loyalty to enforce the legal requirement that directors of public utility companies balance the pecuniary interests of shareholders with the public interest identified in the certificate of incorporation of the company , the shareholder must own at least at least two percent of the outstanding shares of the company or, in the case of some public companies, the lesser of two percent of the outstanding shares of the company or of a value of at least $ 2,000,000.
MERGERS OF HOLDING COMPANIES
Prior to the 2020 changes, Article 251 (g) of the DGCL allowed companies to carry out reorganization mergers of holding companies, without a shareholder vote, only if the merger surviving entity and the operating company existing generally had identical organizational documents. This requirement will be removed with respect to mergers of holding companies completed under an agreement entered into after July 16, 2020. The changes do not change the requirement that shareholders of the holding company must approve any action at the level of the operating company which would have required their approval if they were still shareholders of the operating company. Additionally, the 2020 amendments require that a non-Delaware holding company be managed by people who have the same fiduciary duties as directors of a Delaware corporation.
COMPENSATION AND EXCULPATION
The 2020 changes modify certain provisions of the DGCL governing compensation, advancement and exoneration. First, with regard to any act or omission occurring after December 31, 2020, article 145 (c) of the DGCL will only require compulsory compensation for a current or former manager of a company who has won the case. on the merits or otherwise in a proceeding brought by reason of its corporate status if the officer at the time of such act or omission (i) is the President, Chief Executive Officer, Chief Operating Officer, chief financial officer, chief legal officer, controller, treasurer or chief accounting officer of the company, (ii) is or has been identified in the company’s public records with the SEC as one of the officers highest earners in the company, and (iii) has consented to service of proceedings in Delaware by written agreement.
Second, the 2020 amendments specifically provide that a company can elect to compensate any other successful person in covered proceeding who is not a current or former director or officer of the company. Second, the 2020 amendments protect the rights to indemnity and advancement contained in a corporation’s certificate of incorporation or bylaws by providing that those rights cannot be waived and do not retroactively modify the rights to indemnify or advancement of a Covered Person with respect to acts or omissions that occurred before the removal of such a provision, unless that provision permits it in effect at the time of the removal or amendment. Likewise, the deletion or modification by a company of an exoneration provision from its certificate of incorporation will not affect the acts occurring before such deletion or modification.
ELECTRONIC TRANSMISSION AND COMMUNICATION
The 2020 changes further streamline how corporations and their shareholders can electronically enforce or transmit consents from directors, founders and shareholders and clarify that while a corporation may restrict the ability of its shareholders to sign or deliver documents electronically, a Delaware corporation cannot limit other authorized means of signature or delivery. In addition, shareholder consents or documents evidencing a proxy that are delivered electronically must be accompanied by the information necessary to determine the delivery date and identify the person issuing this document.
The 2020 changes clarify how a company can notify its shareholders. A company may provide notice to shareholders by mail, courier or electronic mail without the consent of the shareholders. However, the notice sent to shareholders by other means of electronic transmission, such as telecommunication by fax, posting on an electrical network or any other form of electronic transmission, requires the prior consent of the shareholder to whom the notice is given. notice is given.
The 2020 Amendments provide that if a registration date has not been set in respect of a share by written consent of the shareholders, the default registration date will be the date on which consents are received by the company.