In our February 25, 2025 advisory, we examined Delaware’s Senate Bill 21 (SB 21), a proposed bill that, if enacted, would strengthen the legal protections afforded to corporations and their directors, officers, and controlling stockholders under Delaware law. As predicted in that advisory, SB 21 has engendered substantial and, at times, vociferous debate since being introduced last month.
Among the numerous criticisms leveled at SB 21 was the proposed legislation’s failure to incorporate input from the Delaware State Bar Association’s Corporation Law Council (CLC), which traditionally has been responsible for initiating and recommending changes to the Delaware General Corporation Law (DGCL) like those in SB 21. Earlier this week, the CLC officially weighed in on SB 21 by proposing several recommended changes to the bill, which scale back certain of SB 21’s proposed amendments. The most significant of these recommended changes are summarized below.
- Added Duty of Care Standard. The revised version adds a duty of care component that requires directors to approve interested transactions “without gross negligence.” SB 21 contains no such duty of care requirement.
- Heightened Board Cleansing Standards. The revised version requires certain transactions to be cleansed by a fully disinterested special committee of two or more directors. SB 21 requires only a majority-disinterested special committee, with no minimum size requirements.
- Clarified Disinterestedness Presumption. The revised version clarifies that directors are presumed disinterested only if applicable NYSE/Nasdaq independence requirements are applied to treat the controlling stockholder/control group as the corporation (i.e., the directors must be independent of the controlling stockholder/control group).
- Expanded “Fairness” Considerations. In circumstances when the fairness of a transaction is considered, the revised version requires the transaction to be fair to the “corporation and its stockholders” (rather than the “corporation or its stockholders,” as in SB 21). The revised version also removes SB 21’s definition of “fair as to the corporation,” which would provide courts with more discretion in assessing a transaction’s fairness.
- Expanded Inspection Rights. The revised version expands stockholder inspection rights to “other specific records” not listed within the statute (which presumably would include internal communications) if the stockholder has (1) demonstrated a “compelling need” for the records to further the stockholder’s proper purpose; and (2) demonstrated by clear and convincing evidence that such records are “necessary and essential” to further such purpose. Conversely, SB 21 limits inspection rights to records specifically identified within the proposed statute.
- Clarified Effective Date. The revised version clarifies that the proposed amendments will apply to all transactions occurring before, on, or after the amendments are signed into law but will not impact any actions or proceedings completed or pending before February 17, 2025. SB 21 does not address the effective date of its proposed amendments.
Whether and how these recommendations will be incorporated into SB 21 remains to be seen. Next up, on March 10, the CLC will formally vote to approve the recommended changes reflected in the revised version. Then, on March 12, SB 21 will be the subject of a Delaware Senate committee hearing, during which the revised version is likely to be considered and discussed.
We at Alston & Bird will continue to closely monitor developments related to SB 21 and report on developments as they occur.
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If you have any questions, or would like additional information, please contact one of the attorneys on our Securities Litigation team or one of the attorneys on our Capital Markets & Securities team.