Delaware’s recent amendments to the DGCL, primarily through Senate Bill 21, have brought about significant shifts in corporate governance, particularly concerning controller transactions and stockholder access to books and records. Here’s a more detailed look:

1. Amendments to DGCL Section 144: Controller Transactions and “MFW” Codification

• Codification of “MFW” and Safe Harbors:
  • The amendments refine and codify the principles established in Kahn v. M&F Worldwide Corp. (“MFW”). This provides clearer “safe harbor” provisions for transactions involving controlling stockholders.
  • Specifically, the legislation distinguishes between “going private” transactions and other controller transactions.
  • For transactions other than “going private” transactions, compliance with either approval by an independent board committee or approval by a majority of disinterested stockholders can provide safe harbor.
  • “Going private” transactions, however, maintain a higher standard, generally requiring both independent committee and disinterested stockholder approval.
• Defining “Controlling Stockholder”:
  • The amendments introduce a more precise definition of “controlling stockholder,” providing clarity on when heightened scrutiny is triggered. This definition includes those who:
    • Own or control a specified percentage of voting power.
    • Have the contractual or other right to elect a majority of directors.
    • The legislation also provides definitions for “control group” and other terms that provide greater clarity within these types of transactions.
• Limitation of Liability:
  • The amendments also limit controller liability to breaches of the duty of loyalty or improper benefits, shielding controlling stockholders from damages for breaches of the duty of care in their capacity as controllers.  

2. Amendments to DGCL Section 220: Books and Records Access

• Narrowing the Scope of Accessible Records:
  • The amendments refine the scope of “books and records” that stockholders can demand, aiming to reduce the burden of overly broad demands.
  • The legislation specifies a list of documents that are considered “books and records,” which generally focuses on formal corporate records.
  • This change is designed to limit the need to produce electronic communications, such as emails and text messages, in many cases.
• Strengthening Procedural Requirements:
  • The amendments enhance the procedural requirements for Section 220 demands, requiring that demands be made:
    • In good faith.
    • For a “proper purpose.”
    • With “reasonable particularity” regarding the purpose and the records sought.
• Enabling Confidentiality Restrictions:
  • The amendments explicitly authorize corporations to impose reasonable restrictions on the confidentiality, use, and distribution of produced records.
  • Corporations may also redact portions of records that are not relevant to the stockholder’s proper purpose.

Key Implications:

• These amendments seek to balance stockholder rights with the need for corporate efficiency and protection.
• The changes are expected to influence litigation strategies in Delaware corporate law.
• The overall goal of these amendments is to provide greater clarity and predictability within Delaware corporate law.

Delaware’s DGCL amendments refine controller transaction rules via the MFW doctrine and tighten stockholder access to corporate records under Section 220. These changes aim to balance corporate efficiency with stockholder rights, providing clearer legal frameworks and impacting future corporate litigation.