Duties of Directors of an Acquiring Company
description
Transcript of Duties of Directors of an Acquiring Company
Duties of Directors of an Acquiring Company
There are relatively few Delaware cases that specifically address the fiduciary duties that are applicable
to directors of an acquiring company.
Business Judgment Rule
Delaware courts have generally applied the traditional business judgment rule to actions taken by
directors of an acquiring company. See Ash v. McCall 2000 Del. Ch. LEXIS 144 (Sept. 15, 2000). Under Delaware law, a decision made in good faith by informed and disinterested directors will usually be protected
by the business judgment rule, which is, in effect, a rebuttable presumption that, in making a business decision, the
directors of the company acted on an informed basis, in good faith and in the honest belief that the action that was
taken was in the best interests of the company.
See also In re Dow Chemical Company Derivative Litigation C.A. No. 4349-CC, 2010 WL 66769 (Del.
Ch. Jan. 11, 2010 where the Delaware Chancery Court reaffirmed the broad applicability of the business
judgment rule to such situations. The Chancery Court reiterated that directors are entitled to rely on the business judgment rule unless the directors
are shown by a preponderance of the evidence to have failed to satisfy one of their duties.
Duties of Directors of an Acquiring Company
Delaware courts will not second-guess the decisions of disinterested directors acting in good faith and
on a fully-informed basis.
Acting on an Informed Basis
Directors must take reasonable steps to become informed, prior to making a decision, of all information
reasonably available to them. See Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985).
Delaware courts have repeatedly emphasized the importance of the decision-making process in
determining whether the business judgment rule applies. Directors need to be actively involved and remain fully informed throughout the process.
Courts will consider whether appropriate steps were taken by the directors to inform themselves of all
relevant facts. Board minutes should record the decision-making process and the actions taken as part of that process.
Duties of Directors of an Acquiring Company
Reliance on Advisors
Delaware law permits directors to rely in good faith on information prepared and advice provided by
officers, employees and outside professionals who are reasonably believed to be knowledgeable in the
relevant matter. See DGCL §141(e).
Advisors and experts must be selected with reasonable care, and the directors must actively and
directly oversee advisors and experts in order to rely on them. See Mills Acquisitions Co. v Macmillan,
Inc., 559 A.2d 1261, 1281 (Del. 1989). See also In re Del Monte Foods Company Shareholders Litigation, 25 A.ed 813 (Del. Ch. 2011) – In finding that the
Del Monte board failed to act upon its financial advisor’s clear conflicts, the Delaware Chancery Court held that
“[t]he record does not reflect meaningful board consideration or informed decision making.”
See also In re El Paso Corp. Shareholder Litigation 41 A.3d 432 (Del. Ch. 2012).