Delaware Supreme Court Rules on the Scope of the Business Judgment Rule, Confirms the Existence of Fiduciary Duties Owed by Officers, & Limits the Doctrine of Shareholder Ratification


The recent Delaware Supreme Court decision in Gantler v. Stephens has provided new guidance on a number of issues impacting companies engaging in transaction activity. As expanded below, the Gantler decision contains further insights on standards of review applicable to actions by a board, confirmation that fiduciary duties are owed by officers under Delaware law, and clarification of the scope of shareholder ratification. Specifically, the Delaware court ruled that:

*Absent conflicts of interest, the decision by a board of directors to terminate merger discussions and abandon a sale process is protected by the business judgment rule;

*The enhanced scrutiny standard under Unocal is applicable only where defensive actions are taken by a board beyond merely rejecting an acquisition proposal;

*Officers of Delaware corporations owe the same fiduciary duties of care and loyalty to shareholders as directors owe to shareholders; and

*Shareholder votes cannot serve to ratify a challenged decision of a board of directors where the shareholder vote was itself required by law to approve a particular action.

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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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