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Newly introduced Delaware Senate Bill 21 would, if adopted, make significant changes to Section 144 of the DGCL to more narrowly define key concepts from case law and create a safe harbor for corporate transactions with controllers (other than going private transactions). Here’s more from this CLS Blue Sky blog:

Overturning Match Group: Lowering the Standard for Controller Transactions. Under Match Group, all controlling stockholder transactions must satisfy all six MFW procedural protections—or face entire fairness review. The proposal rewrites that rule: It applies MFW only to so-called “controller takeovers” (mirroring the original MFW), and even then jettisons crucial MFW features such as full independence of the committee and ab initio In practical terms, going-private deals no longer need to be conditioned on both cleansing mechanisms from the outset, and the committee need only be “majority disinterested” (explained below). For all other controlling-stockholder transactions, the standard is also lowered: (a) The special committee does not have to be fully independent, only “majority disinterested.” (b) The stockholder vote counts only votes actually cast, so abstentions do not act as opposition. (c) Either committee approval or stockholder approval suffices—no need to secure both. This is a major departure from Match Group and fundamentally reduces the scrutiny applied to controller transactions.

Defining “Controlling Stockholder” with a 33.33 percent Threshold. Delaware courts have recognized controllers below 33.33 percent when they exert “actual control.” The proposal imposes a bright-line rule: A stockholder is a controller only if the stockholder owns a majority or holds at least one-third plus managerial authority equivalent to a majority owner. This will exclude some major stockholders (20–33 percent) from controller scrutiny, even if they exercise significant influence. Notably, it undermines cases like Tornetta v. Musk(2024), where Elon Musk was deemed a controller at just 21 percent. Under this rule, he would not have been classified as a controller at all.

Presumption of Independence for Exchange-Listed Directors. A director deemed independent under NYSE/Nasdaq rules is now presumed disinterested unless strong, particularized evidence proves otherwise. Additionally, a director’s nomination by an interested party does not, by itself, suggest the director is interested. This directly counters cases like Goldstein v. Denner, where a director’s controller-backed nomination played a key role in determining that the director wasn’t independent. This change makes it harder to challenge director independence.

“Fair as to the Corporation” Defined. The proposal defines fairness as a transaction that provides a benefit to the corporation or stockholders and is comparable to what might have been obtained in an arm’s-length deal. This codifies the two-pronged fairness test (fair price + fair process) but lacks detail compared with decades of entire fairness jurisprudence. It leaves open several questions: How “comparable” must the deal terms be? What evidence satisfies this? Courts will likely need to interpret these gaps in future litigation.

New Definitions of “Material Interest” and “Material Relationship.” For directors, a material interest or material relationship is anything that reasonably impairs their objectivity. For stockholders, it’s defined more broadly as anything material to them personally. This replaces the fact-intensive, contextual analysis of director independence from Beam v. Stewartand In re Oracle with simplified statutory definitions. Courts may now be less willing to find conflicts unless the impairment is explicit and significant. This could potentially limit challenges to board independence.

– Meredith Ervine