The Delaware General Assembly recently signed a bill amending the Delaware Statutory Trust Act (the “DSTA”). Most of the amendments became effective on August 1, 2022; however, a few amendments will not become effective until August 1, 2023. The amendments make various changes to the DSTA to keep Delaware Statutory Trusts (“DSTs”) current. The amended bill: (i) adds business development companies to multiple provisions of the DSTA; (ii) clarifies how to bind DSTs to a contract by authorized persons; (iii) confirms and clarifies the rights, powers, and duties of the trustee and the ability to delegate its duties when there is a conflict of interest; (iv) provides certain safe harbor procedures; (v) streamlines Delaware filings upon the succession of a trustee in multiple trusts; (vi) clarifies the effectiveness of a statement in a Delaware filing; (vii) clarifies a beneficial owner’s right to obtain information from a DST; (viii) authorizes the use of electronic signatures on certificates of beneficial interest; and (ix) adds a control beneficial interest acquisition provision to the applicable DSTs.
Business Development Companies
Sections 3801(f), 3805(h), 3806(l), 3807(b), 3807(c), 3815(a), 3821(b), 3823(b) and 3825(c) of the DSTA have been updated to include business development companies. The provisions of these Sections previously applied only to registered investment companies within the meaning of the Investment Company Act of 1940. Business development companies have many similarities and are subject to many of the federal regulations applicable to registered investment companies. However, as a technical matter, they are not registered investment companies. Accordingly, these Sections of the DSTA have been expanded to apply to business development companies.
Binding Contracts
The bill amends Section 3804(a) to clarify that, except as provided in the governing instrument of a DST, the named authorized person or duly authorized agent may bind a DST to a contract or instrument by entering into the contract or instrument in the name of the DST or in the name of the person acting on behalf of the DST.
Delegation of Trustee’s Rights, Powers and Duties
Sections 3806(b)(7) and 3806(i) have been updated with respect to the delegation of rights, powers and duties under the governing instrument of a DST, including when there is a conflict of interest. Sections 3806(b)(7) and 3806(i) of the DSTA were amended to clarify that a trustee, officer, employee, manager or other person responsible for managing the business and affairs of the DST may delegate its rights, powers and duties irrespective of whether it has a conflict of interest, and the person to whom such rights, powers and duties are being delegated is not deemed to be conflicted solely because of the delegating person’s conflict of interest. Additionally, Section 3806(i) was amended to clarify the broad power and authority of a trustee to delegate any or all of its rights, powers and duties to manage and control the business and affairs of a statutory trust, including any core governance functions.
The amendments to Sections 3806(b)(7) and 3806(i) create a different rule than that which was applied in cases such as Wenske v. Bluebell Creameries, Inc., 214 A.3d 958 (Del. Ch. 2019), where is was held that a conflicted principal is legally disabled from delegating authority over the subject matter as to which the principal is conflicted event to an independent delegate.
Safe Harbor Procedures
The bill adds Subsection (o) to Section 3806 to provide a safe harbor procedure to ratify void or voidable acts or transactions by a DST under the DSTA or a governing instrument, and waives any failures to comply with provisions of the governing instrument that may result in such acts or transactions to be void or voidable.
The new subsection in intended to provide a different rule from that which was applied in Composecure, L.L.C. v. Cardux, LLC, 206 A.3d 807 (Del. 2018), and Absalom Absalom Trust v. Saint Gervais LLC, 2019 WL 2655787 (Del. Ch. June 27, 2019), where it was held that acts or transactions determined to be void generally may not be ratified. The new subsection confirms that void or voidable actions may be ratified, or requirements may be waived by other means permitted by law. However, Subsection (o) is not intended to preempt or restrict other valid means of ratifying acts or transactions or waiving requirements or to impair the effectiveness of any valid ratification or waiver previously affected.
Succession of a Trustee
Section 3807 has been amended to add Subsection (n) which allows for the filing of a single certificate by a trustee who has succeeded a predecessor trustee of multiple DSTs to amend the name and address of the trustee in each affected certificate of trust. This amendment has a delayed effective date of August 1, 2023.
Timing of Statements in Delaware Filings
Section 3811(c) of the DSTA has been amended to clarify that the execution of a certificate by a person who is authorized by the DSTA to execute the certificate constitutes an oath or affirmation that, to the best of the person’s knowledge and belief, the facts stated therein shall be true at the time the certificate becomes effective, not at the time the certificate is executed.
Beneficial Owner’s Right to Information
Section 3819 has been amended to make clarifying and confirming changes and has added subsection (f) to provide that when a beneficial owner is entitled to obtain information for a stated purpose, the beneficial owner’s right shall be to obtain such information as is necessary and essential to achieve that purpose unless the right has been expanded or restricted by the governing instrument. To the extent, the current law provides that the “necessary and essential” test does not apply by default to (i) a beneficial owner’s right under Section 3819(a) of the DSTA to obtain information from a DST for a purpose reasonably related to the beneficial owner’s interest as a beneficial owner of a DST or (ii) a beneficial owner’s right under a governing instrument to obtain information from a statutory trust for a stated purpose, new subsection (f) is intended to change that law.
Electronic Signatures on Certificates of Beneficial Interest
The bill amends Section 3826(b) to confirm that a signature on a certificate of beneficial interest may be a manual, facsimile or electronic signature.
Control Beneficial Interest Acquisition Provision
The 2022 amendments add a completely new section to the DSTA, Subchapter III. This Subchapter involves a control beneficial interest provision for DSTs registered under the Investment Company Act of 1940, as closed-end management investment companies or DSTs that are closed-end management investment companies that have elected to be regulated as business development companies under the Investment Company Act of 1940, and that in either case have a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et. Seq.) or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ).
The Delaware General Assembly amended and added various Sections to the DSTA to keep the DSTA current and maintain its national preeminence. The majority of the above-mentioned amendments went into effect on August 1, 2022. However, the amendment stated in numbered paragraph V will go into effect on August 1, 2023.
