The Case For Applying The Delaware Courts’ Recent Transactional “Road Maps” To Bankruptcy Proceedings

November, 2018
R. Stephen McNeill and Mathew A. Golden
Norton Annual Survey of Bankruptcy Law

While Delaware courts have long striven for uniformity and clarity in corporate case law, their recent decisions have placed newfound emphasis on providing “road maps” for transaction planners to structure mergers and negotiation processes in a manner that obviates the need for judicial review where a conflict might otherwise be present. In one such case, Kahn v. M & F Worldwide Corp. (“MFW”), the Delaware Supreme Court enumerated elements that, if satisfied, will result in the application of the most deferential standard of judicial review in the presence of what may arguably be the most acute conflict in the corporate context—where a controlling stockholder seeks to purchase the minority stockholders’ interest in the company. In In re Martha Stewart Living Omnimedia, Inc. Stockholder Litigation (“MSLO”), the Delaware Court of Chancery extended the holding in MFW to apply to situations where a controlling stockholder competes with the minority for consideration from a third-party buyer.

These decisions have obvious import to counsel planning typical mergers and acquisitions, but the Delaware courts’ guidance should not be overlooked in bankruptcy proceedings where similar procedural concerns may arise in a sale of the company. This article discusses how the holdings of MFW and MSLO can serve to better inform such proceedings, as well as how they may provide a mechanism to structure bankruptcy sale processes to guard against potential conflicts and possibly lead bankruptcy courts to decrease the level of their scrutiny over such transactions.

For the full article or for more information on the Norton Annual Survey of Bankruptcy Law, Volume 2018, visit Thomson Reuters.

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