Legal Alerts / 29 Jul 2020

Upcoming Amendments to the Delaware General Corporation Law and Their Implications on Finnish Companies’ U.S. Subsidiaries

Proposed Amendment to the Delaware General Corporate Law

In response to the ongoing COVID-19 pandemic, the Delaware State Bar Association proposed several changes to the Delaware General Corporation Law (“DGCL”) clarifying certain powers that a board of directors may exercise during emergency conditions. The Delaware State Assembly adopted the proposed amendments on June 23, 2020, and if signed by Delaware Governor John Carney the amendments will become law with retroactive effect as of January 1, 2020. The DGCL governs corporate law in the U.S. state of Delaware, considered the most important jurisdiction in U.S. corporate law. More than three-quarters of the companies incorporated in Delaware annually are located outside the U.S. In addition, many Finnish companies operate in the U.S. through a Delaware corporation and keeping up to date on developments in Delaware corporate law is of upmost importance.

Amendments to the DGCL Concerning Emergency Conditions

Among other things, the 2020 amendments modify the DGCL to address issues corporations have faced during the COVID-19 pandemic. The DGCL authorizes the adoption of bylaws that become operative during an emergency condition that prevents a quorum of the board from convening and provides for the exercise of emergency powers. An emergency condition has been defined broadly in the past any emergency resulting from an attack on the United States or on the locality in which the corporation operates its business or holds its board meetings.

Pursuant to the 2020 amendments, “an epidemic or pandemic, and a declaration of a national emergency by the United States government” is an emergency condition allowing for the exercise of emergency powers and operation of emergency bylaws. The 2020 amendments additionally remove the condition that the emergency condition be one that prevents a quorum of the board from convening. Finally, the 2020 amendments allow for the adoption of emergency bylaws or, in the absence of emergency bylaws, the exercise of certain powers by the board of directors or, if a quorum cannot be convened for a meeting, by a majority of the directors present.

Pursuant to the amendments, during an emergency condition and notwithstanding contrary provisions in the DGCL or the corporation’s charter or bylaws, a board may “take any action that it determines to be practical and necessary to address the circumstances of such emergency condition” in relation to a stockholders’ meeting. Those actions may include postponing a stockholders’ meeting to a later time or date, while retaining the same record date. For corporations subject to reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”), the board may notify stockholders of such postponement and changes to the place of meeting by means of a filing with the Securities and Exchange Committee (“SEC”). The latter change also applies to changes from holding an in-person stockholders’ meeting to a virtual meeting in light of government-ordered lockdowns and concerns for public health and safety.

In addition, the 2020 amendments permit a board or, if a quorum cannot be convened for a meeting, a majority of the directors, during any emergency condition, to change to a later date the record date and payment date of any dividend already declared but the record date of which has not yet occurred. If the record date is delayed, the board or the majority directors must ensure that the new payment date is within 60 days of the new record date. As was the case with postponement and changes to a stockholders’ meeting, corporations subject to the Exchange Act reporting requirements may notify stockholders of changes to the payment and record date of dividends by means of a filing with the SEC.

Insights into the Proposed Amendments to the DGCL

The proposed amendments to the DGCL respond directly to the extraordinary challenges posed to normal corporate process by the COVID-19 pandemic. If signed into law, the amendments will take retroactive effect as of January 1, 2020.

Summary in Finnish

Käynnissä olevan COVID-19-pandemian seurauksena Delawaren osakeyhtiölakiin (Delaware General Corporation Act, ”DGCL”) on ehdotettu useita muutoksia, joiden avulla selvennetään tiettyjä valtuuksia, joita yhtiön hallitus voi tarvittaessa käyttää hätätilassa. DGCL säätelee yhtiölainsäädäntöä Yhdysvaltojen Delawaren osavaltiossa, jota pidetään yhtiölainsäädännön näkökulmasta Yhdysvaltain tärkeimpänä lainkäyttöalueena. Yli kolme neljäsosaa Delawareen vuosittain rekisteröidyistä yhtiöistä sijaitsee Yhdysvaltojen ulkopuolella. Myös monet suomalaiset yhtiöt toimivat Yhdysvalloissa Delawareen rekisteröidyn yhtiön kautta, minkä takia yhtiöiden on erittäin tärkeää pysyä ajan tasalla Delawaren yhtiölainsäädännön kehityksestä. Ehdotetut muutokset selventävät, että ”epidemia tai pandemia” on hätätila, joka oikeuttaa hätätilaa koskevien valtuuksien ja yhtiöjärjestyksen artiklojen käyttöönottoon. Vuoden 2020 muutokset poistavat myös sen mahdollisuuden, että hätätila voisi estää päätösvaltaisen hallituksen kokoontumisen. Lisäksi vuoden 2020 muutokset mahdollistavat hätätilaa koskevien yhtiöjärjestyksen artiklojen käytön tai, niiden puuttuessa hallituksen tiettyjen valtuuksien käytön myös sellaisessa tilanteessa, jossa päätösvaltaista kokousta ei voida kutsua koolle, sillä päätös näiden käytöstä voidaan tehdä myös läsnä olevien jäsenten enemmistöllä. DGCL:ään ehdotetuilla muutoksilla pystytään vastaamaan näihin poikkeuksellisiin haastetilanteisiin, joita COVID-19 -pandemia asettaa tavanomaisille yhtiöoikeudellisille prosesseille.

Share on LinkedInTweet about this on TwitterShare on Facebook