TheCorporateCounsel.net

Earlier this week, Delaware Gov. Matt Meyer signed the highly contested 2025 amendments to the DGCL into law. The legislation amends Section 144 of the DGCL to establish broad safe harbors for transactions with directors and officers and controlling stockholders. It also significantly narrows the information available pursuant to a books & records demand under Section 220 of the DGCL.

The new safe harbor for transactions with directors and officers is contained in Section 144(a) of the DGCL and departs from existing Delaware precedent by allowing a transaction approved by a special committee of directors to qualify for the safe harbor no matter when that committee was formed. Delaware case law previously required such a committee to be established ab initio, before any economic terms of the proposed transaction were discussed. The new safe harbor also departs from the requirement that the special committee must be comprised entirely of disinterested directors.

The statute also creates a rebuttable presumption that a director of a public company is disinterested if the board determines that the director satisfies applicable stock exchange standards. In order to rebut this presumption, the plaintiff must show “substantial and particularized facts” indicating that the director was conflicted.

These are significant changes, but the provisions of the legislation that have generated the most heated debate are those establishing safe harbors for transactions involving a controlling stockholder. Here’s an excerpt from Troutman Pepper Locke’s memo on the amendments describing the safe harbor for non-going private transactions with a controlling stockholder:

Under amended Section 144(b) of the DGCL, a conflict transaction involving a controlling stockholder (but other than a go-private transaction) may not be the subject of equitable relief or monetary damages against an officer, director, or the controlling stockholder by reason of a fiduciary breach if:

1. The facts as to the transaction are disclosed to a committee to which the board has expressly delegated the authority to negotiate and to reject the transaction, and such transaction is approved (or recommended for approval) in good faith and without gross negligence by a majority of the disinterested directors then serving on the committee (and the committee must consist of at least two directors, each of whom has been determined by the board to be disinterested);

2. The transaction is conditioned, at the time it is submitted to stockholders for their approval or ratification, on the approval of, or ratification by, disinterested stockholders, and the controlling stockholder transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders; or

3. The transaction is fair as to the corporation and its stockholders (essentially invoking Delaware’s “entire fairness” standard of review)

Under current Delaware law, a conflicted controlling stockholder transaction must be approved by both a majority of the disinterested directors and by a majority of the disinterested stockholders. Why is this controversial? Well, among other things, the ability to authorize such a transaction with a disinterested director vote would likely insulate compensation arrangements like the one at issue in Tornetta v. Musk from attack.

What’s more, Elon Musk’s compensation arrangements wouldn’t even be subject to challenge as a conflicted controller transaction under the new regime, because the statute precludes a stockholder owning less than one-third of the voting power of the company from being regarded as a controlling stockholder.

For going private transactions, the statute preserves some of the existing MFW regime by allowing controllers to avoid satisfying the entire fairness standard only if the deal is approved by both a disinterested special committee and the disinterested stockholders. However, all the changes set forth in Section 144 with respect to the timing of the special committee’s formation & its composition apply to going private transactions as well, and that’s a big departure from recent case law interpreting MFW.

We’re posting memos on the 2025 DGCL amendments in our “Delaware Law” Practice Area.

– John Jenkins