A significant overhaul of Delaware corporate law, linked to business leaders such as Elon Musk, has come under sharp criticism from a Delaware judge. Vice Chancellor J. Travis Laster expressed concerns over the recent legislation at a Fordham University School of Law event. The changes, signed into law by Governor Matt Meyer, aim to lower barriers around insider deals, reduce shareholder access to communications and strengthen board member independence.
Governor Meyer introduced state Senate Bill 21 as a response to fears of a corporate exodus from Delaware, exacerbated by Musk’s prior conflicts with the state’s business court, leading to Tesla’s move to Texas and urging others to follow suit.
Judge Laster critiqued the legislation for defining controlling shareholders narrowly, deviating from precedent by requiring at least a one-third ownership stake. He expressed uncertainty regarding the origin of this benchmark, noting the legislative history’s lack of clarity. Laster warned that the law might result in increased litigation due to the ambiguity judges will need to interpret. He argued this deviates from other areas of law, where control is typically considered a trial judge’s factual issue, with ownership presumptions usually around 20%.
Moreover, Laster voiced concerns over the legislative process that appeared to circumvent the traditional lengthy review procedure involving the state bar association’s Corporation Law Council. This swift enactment and rejection of dissenting opinions drew surprise and disappointment among legal scholars.
Despite philosophical differences with the legislation, Laster acknowledged the intentions of those involved, emphasizing that all parties believe their actions are in Delaware’s best interest. This piece of legislation marks what Laster describes as the state’s transition into an era where legislative measures take precedence over judicial decisions, which could permanently change the balance of power within Delaware’s corporate legal landscape.
For further details and context, refer to the original article on Bloomberg Law’s news site.