In a May 29, 2023 opinion by the Delaware Chancery Court addressing a claim by sellers for specific performance under a merger agreement following buyer’s termination for breach of the capitalization representation, the court found that sellers breached the capitalization representation under the merger agreement based on the post-signing discovery that a former employee held phantom equity in a subsidiary of the target company. Despite buyer’s concession that the financial value of the former employee’s interest in the subsidiary was “minor relative to the deal value,” the court concluded that buyer was entitled to terminate the merger agreement since the capitalization representation was brought down flat at closing (and not subject to any de minimis or materiality qualifier).Continue Reading Private Equity Buyer Permitted to Walk From Deal Based on Capitalization Representation Breach
Derivative Claim Against Shell’s Board by Climate-Change Activist Shareholder is Refused Permission to Proceed
On February 9, 2023, NGO ClientEarth sued all eleven members of the board of directors of Shell plc before the English High Court, for allegedly failing to take steps to protect Shell against climate-change-related risks (see our alert memorandum of February 22, 2023). Our follow-up alert memorandum of April 17, 2023, also set out some answers to some common questions on derivative claims in the context of ESG litigation.Continue Reading Derivative Claim Against Shell’s Board by Climate-Change Activist Shareholder is Refused Permission to Proceed
Delaware Chancery Court Highlights Tension Between Freedom of Contract and Corporate Fiduciary Duties
In a recent decision, the Delaware Court of Chancery grappled with the question whether—and to what extent—claims for breach of fiduciary duty can be waived ex ante in a corporate shareholder agreement. Specifically, in New Enterprise Associates 14 LP v. Rich, the court denied a motion to dismiss claims for breach of fiduciary duties brought against directors and controlling stockholders of Fugue, Inc. (the “Company”) by sophisticated private fund investors who had agreed to an express waiver of the right to bring such claims. Importantly, the court found that fiduciary duties in a corporation can be tailored by parties to a shareholders agreement who are sophisticated, and were validly waived by the voting agreement in this case (which specifically addressed the type of transaction at issue). The court, however, held that public policy prohibits contracts from insulating directors or controlling stockholders from tort or fiduciary liability in a case of intentional wrongdoing, which the court found was plausibly alleged in this case. The court’s opinion has implications for sophisticated investors in venture capital and other private transactions involving Delaware corporations. The opinion cautions against overreliance on express contractual waivers, on the one hand, while also serves as a reminder that at least in some circumstances sophisticated parties can contract around default legal principles (including fiduciary duties), even with respect to corporations.Continue Reading Delaware Chancery Court Highlights Tension Between Freedom of Contract and Corporate Fiduciary Duties
Corwin Cleansing Denied In Action For Post-Closing Injunctive Relief Under Unocal
On May 1, 2023, the Delaware Court of Chancery addressed an unsettled question under Delaware law—whether a fully informed, uncoerced vote of disinterested stockholders (so-called “Corwin cleansing”) can be applied to defeat claims to enjoin defensive measures under Unocal Corp. v. Mesa Petroleum Co.Continue Reading <em>Corwin</em> Cleansing Denied In Action For Post-Closing Injunctive Relief Under <em>Unocal</em>
Corporates Face Novel, Greater Risks from Debt Ceiling Impasse—Even if No Default Occurs
As the threat of an unprecedented default in U.S. government debt plays out over the coming months, the United States is in uncharted territory.Continue Reading Corporates Face Novel, Greater Risks from Debt Ceiling Impasse—Even if No Default Occurs
ESG Litigation: Derivative Claims Against Directors: Q&A
The litigation recently launched in England by the NGO, ClientEarth, against the members of the board of directors of Shell plc has generated a significant level of interest from organisations who wish to understand the implications for directors more generally. The claim raises novel issues regarding directors’ responsibilities for a company’s environmental impact, and questions about how environmental obligations should be implemented and enforced.Continue Reading ESG Litigation: Derivative Claims Against Directors: Q&A
President Biden’s Fiscal 2024 Proposed Budget Includes Tax Rate Increases, and Several Executive Compensation and Employee Benefits Changes
Earlier this month, the Treasury Department published its explanation of President Biden’s proposed fiscal 2024 budget. We have summarized the tax rate increases, as well as the executive compensation and employee benefits proposals below. These proposals, which are similar to the ones contained in President Biden’s last few budgets, are unlikely to be passed in their current form, especially now given that the House of Representatives is controlled by the GOP. However, we expect that there will be lots of negotiating over the fiscal 2024 budget, so one or more of these proposals may find their way into the final budget. We will publish updates as these proposals evolve.Continue Reading President Biden’s Fiscal 2024 Proposed Budget Includes Tax Rate Increases, and Several Executive Compensation and Employee Benefits Changes
Delaware Chancery Court’s Mindbody Decision – Lessons for Private Equity Buyers in Take-Private Transactions
In a recent opinion addressing breaches of fiduciary duties and disclosure violations in connection with a take-private of Mindbody, Inc. by Vista Equity Partners, the Delaware Court of Chancery reinforced the significance (to both buyers and sellers) of avoiding conflicts in a sell-side process and ensuring all material facts are disclosed to the target’s board and stockholders. The Mindbody opinion, while addressing unusual facts, serves as a helpful guide for buyers in take-private transactions.
Please click here to read the full alert memorandum.
The German M&A Market – Q1/2023
Please click here for the latest edition of the Cleary Gottlieb M&A Telegram for Germany.
Recent EU Tax Developments
The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2023”.
With the various global crises, budget spending to address inflation and post-COVID-19 pandemic effects continuing to weigh on fiscal budgets globally, governments will at some point soon need to recoup lost revenue.
As regards the EU, there are a large number of current and upcoming legal developments that will significantly change the tax landscape and need to be monitored.
Most notably, in mid-December 2022, the EU Member States agreed on the EU Directive implementing Pillar 2 on the 15% effective minimum corporate tax rate that will need to be transposed into national laws by December 31, 2023. During 2023, expect further focus related to discussions on Pillar 1 (the digital nexus or, alternatively, digital services taxes), DEBRA (Debt-equity bias reduction allowance), Unshell (ATAD 3), SAFE (Securing the activity framework of enablers) and BEFIT (Business in Europe: Framework for Income Taxation).
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For a PDF of the full memorandum, please click here.