This Proposed Amendment To DGCL Section 141(f) Is A Curate’s Egg

In AGR Halifax Fund, Inc. v. Fiscina, 743 A.2d 1188 (1999), the Delaware Court of Chancery was asked to decide whether a consent given by persons before they became directors could become effective if delivered to the corporation after they became directors.  The court said “no”.  See Tis Well Consented” Vel Non.  Now, the Corporation Law Section of the Delaware State Bar Association is proposing legislation that would overrule that result by adding the following to Section 141(f) of the Delaware General Corporation Law:

Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given for purposes of this subsection at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.

There are some practical reasons for wanting to allow for “springing consents”.  For example, when a corporation is acquired, it arguably makes sense for the incoming board to approve certain matters, such as new debt, because they will be the directors who will have to live with the consequences.  The proposed amendment raises some questions.

For example, what fiduciary duties, if any, attach when someone provides a consent when he or she is not presently a director?  Will that person be “fully protected” pursuant to DGCL Section 141(e) if he or she relies on the corporation’s then officers or board committees in giving the consent?  How and when will that person’s independence and disinterestedness be measured (particularly, if that person is serving as an officer of the acquiring company at the time the consent is given)?  What if the person gives the consent without informing herself but before becoming a director becomes fully informed so that the decision not to revoke the consent is an informed decision?  Will compliance with fiduciary duties be assessed at the time the consent was in fact ”given” or when it deemed given under the statute?  Note that the statute provides only that it is “deemed to have been given” only for purposes of Section 141(f).

If that person owes fiduciary duties nunc pro tunc, then will that person have the benefit of any exculpation pursuant to the corporation’s certificate of incorporation?  Section 102(b)(7) of the DGCL authorizes exculpation “for breach of a fiduciary duty as a director.“  Clearly, the person wasn’t a director at the time he or she decided to consent and he or she won’t be a director until the time for revocation of the consent has passed.  A related question is whether the person will be entitled to the benefit of any indemnification provisions in the certificate of incorporation or bylaws.

Finally, it is unclear whether these new provisions could be eliminated by the certificate of incorporation or bylaws.  Current Section 141(f) begins with “Unless otherwise restricted . . .”.  However, that proviso would appear to be limited to the ability to take action by unanimous written consent.

 

Topics:  Board of Directors, Consent, Corporate Counsel, Corporate Governance

Published In: Business Organization Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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