![]() Laster’s 133-page opinion for Delaware’s Chancery Court relied on Section 141 of the state’s General Corporation Law, which enshrines the idea that companies should be managed by their boards. The investors holding veto rights in those cases include Silver Lake Group LLC, Thoma Bravo LLC, General Atlantic LP, Roark Capital Group Inc., and several Canadian pension funds. The litigation echoes other disputes, most of them involving more recently listed companies: IT services company N-able Inc., autobody chain owner Driven Brands Holding Inc., revenue management business R1 RCM Inc., grill manufacturer Traeger Inc., payments platform EverCommerce Inc., and HireRight Holdings Corp., which performs employment-related background checks. The Moelis pact was “an unusually extreme concatenation of shareholder rights, entered under less-than-ideal circumstances, and targeted at one of the pillars of Delaware corporate law,” he said. The decision hinted at the limits of that openness by “drawing some lines at the most aggressive shareholder agreement I’ve seen,” but it also raised significant questions about how a more modest collection of veto provisions might fare, according to Rauterberg. Delaware’s courts have shown an increased willingness in recent years to accept creative, bespoke arrangements altering the default corporate form, he said. The Moelis case reflects “a really tectonic shift in the architecture of corporate law,” said Gabriel Rauterberg, a University of Michigan law professor. “If you change that, is that really consistent with Delaware law? And how far can you change it?” New Backlash Read More: Delaware’s Judge Laster Is Making His Mark on Corporate AmericaĬonstrained by those veto provisions, “the board is not really a board,” the judge said, although he upheld other sections of the agreement.įor decades, “nobody really has scrutinized shareholder agreements before on this basis, looking at the extent to which they may be in tension with the idea that the board of directors fundamentally manages the corporation,” said Jill Fisch, a University of Pennsylvania law professor. That’s in addition to the roughly 40% voting power that came with his 6.5% stake. 23 rejected the constellation of approval rights held by Moelis, the investment bank’s chairman and CEO, who had the final say over its leadership, litigation strategy, budget, business plans, and charter, as well as any dividend payment or stock issuance. “These firms have gotten much more aggressive in how much say they have with their investments, particularly if they’re coming in with capital at that magic moment where they have more negotiating power,” Ram said. He pointed to the growth of private markets that let venture-backed businesses delay their initial public offerings by years. Structural changes in the US economy have put the contracts in the legal crosshairs for the first time even though “companies have been adopting more or less similar agreements for many years,” according to Stephen Ram, a partner at Stradling Yocca Carlson & Rauth LLP. Other businesses that have faced similar legal challenges include Alignment Healthcare Inc., EngageSmart Inc., and Petco Health & Wellness Co. The ruling by a Delaware judge-invalidating most of an agreement between the company and billionaire founder Kenneth Moelis-was the first to grapple with a wave of shareholder pacts giving extensive veto rights to early investors. threatens the growing corporate practice of giving a company’s financial backers significant authority, by contract, over core managerial decisions. A first-of-its-kind court decision involving investment bank Moelis & Co.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |