Kevin Mangan Jill Agro Meg Manning

Transcription

1 DUSTING OFF YOUR CORPORATE CONTRACTS Kevin Mangan Jill Agro Meg Manning

2 The Basics Meetings Mechanism to Amend Bylaws or Operating Agreement

3 Number of Directors Does your state require a specific number of directors? Do your bylaws specify how many directors you must have? Does your certificate of incorporation fix the number of directors? Do any of these conflict?

4 Number of Directors (continued) Issues that arise concerning the number of directors: Contested elections; Validity of bylaw amendments; Removal of directors; and Filling a vacancy on the board. Crown Emak Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010).

5 Duties and Authority of Officers Do your bylaws identify the titles of the executives/officers of the company? Are those titles consistent with the titles used across the organization? Are their duties and authority defined in the bylaws? If not, where are they defined? Executive employment agreements?

6 Duties and Authority of Officers (continued) Consider the following provision: Officers shall have the authority and perform the duties as from time to time may be prescribed by the Board.

7 Advancement and Indemnification Differentiating between advancement and indemnification Does your state of incorporation require the company to advance and/or indemnify its officers and directors? Is that requirement consistent with the advancement and indemnification provisions in your bylaws? Who is entitled to advancement and/or indemnification under your bylaws? Sassano v. CIBC World Mkts. Corp., 948 A.2d 453 (Del. Ch. 2008)

8 Litigation Reform Bylaws Fee-Shifting Bylaws ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) Forum-Selection Bylaws Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013) City of Providence v. First Citizens Bancshares, Inc., 99 A.3d 229 (Del. Ch. 2014)

9 Litigation Reform Bylaws (continued) Mandatory Arbitration Bylaws Corvex Mgmt. LP v. Commonwealth REIT, 2013 Md. Cir. LEXIS 3 (May 8, 2013) Minimum Stake to Sue Bylaws Rothenberg v. Imperial Holdings, Inc., et al., No ca , Complaint (Fla. 15th Cir. Ct. Jan. 20, 2015).

10 Bankruptcy Remote Entities A bankruptcy-remote entity is generally defined as an entity which is separate from its affiliates, owns only the subject property (i.e., a contract), and has no other debt. A special-purpose vehicle (or special-purpose entity) ( SPV or SPE ) is formed to hold a defined group of assets and to protect them from being administered as property of a bankruptcy estate. Intended to separate the credit quality of assets upon which financing is based from the credit and bankruptcy risks of the entity involved the financing.

11 Bankruptcy (continued) Bankruptcy-Remote does not mean Bankruptcy-Proof. Despite provisions in the by-laws, Bankruptcy-Remote Entities may file for bankruptcy. Bankruptcy-Remote Entities may be forced into bankruptcy through Substantive Consolidation.

12 Bankruptcy (continued) Legal Standard for Substantive Consolidation In the Third Circuit, a proponent of substantive consolidation must demonstrate one of two rationales for its application: Prepetition [the entities for whom substantive consolidation is sought] disregarded separateness so significantly that their creditors relied on the breakdown of entity borders and treated them as one legal entity, or Postpetition their assets and liabilities are so scrambled that separating them is prohibitive and hurts all creditors. In re Owens Corning, 419 F.3d 195 (3d Cir. 2005).

13 Bankruptcy (continued) The D.C. Circuit requires a proponent of substantive consolidation to establish the substantial identity of the entities and provides for substantive consolidation despite creditor reliance on separateness when the demonstrated benefits of consolidation heavily outweigh the harm. Drabkin v. Midland-Ross Corp. (In re Auto-Train), 810 F.2d at 270, 276 (D.C. Cir. 1987).

14 Bankruptcy (continued) To avoid substantive consolidation, bankruptcy remote entities are designed and operated to provide evidence of their legal separateness. There are various methods of achieving this goal, beginning with decisions concerning which business organization to use and which state s law to apply. Due to the flexible nature of Delaware s LLC statute and Delaware s respect for separate corporate identities, remote entities are commonly formed in Delaware.

15 Wrap Up Conduct regular check-ups of your bylaws and other corporate documents. Make sure they are consistent with: applicable law; the certificate of incorporation; already existing bylaws; and separate agreements (like employment agreements).