DELAWARE SUPREME COURT 2021 CORPORATE LAW UPDATE
Any time the Delaware Supreme Court issues a decision on corporation law, there is a significant chance that the law will be shaped in a way that reverberates throughout the M&A bar and the corporate community at large. In that regard, 2021 did not disappoint.
Throughout the year, the Court issued numerous important corporate law-related decisions that have had an immediate impact on a number of key topics. The decisions are reviewed below and relate to the following subjects: books and records inspection rights, the demand futility test, stockholder standing, inequitable conduct, insurance coverage for fraudulent conduct and waiver of statutory appraisal rights.
On the cusp of 2021, the Court affirmed its view that stockholder rights to inspect corporate books and records are broad (see AmerisourceBergen Corp. v. Lebanon Cty. Emps.’ Ret. Fund (2020)). Pursuant to the Delaware General Corporation Law (DGCL) section 220, stockholders may demand inspection of corporate books and records for a number of proper purposes. Typically, stockholders seek these documents to purportedly investigate director and officer wrongdoing in order to pursue derivative litigation on behalf of a company.
To obtain such documents in a 220 proceeding, a stockholder must demonstrate a credible basis of wrongdoing – known as the lowest burden in Delaware law. In AmerisourceBergen, the Court discussed the assertion of merits-based defences to defeat a 220 complaint where the stated purpose was to investigate wrongdoing. Such defences might include, for example, where a 102(b)(7) exculpatory provision would bar recovery for certain purported wrongdoing or where directors were protected under DGCL 141(e) for relying on an expert’s opinion. These have been successful in prior 220 actions.
Jan-Mar 2022 issue
Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates