(June 22, 2020) - Delaware lawmakers have proposed allowing a pandemic or epidemic to count as a circumstance in which the state’s corporations may temporarily relax board quorum, voting and other governance requirements.
House Bill 341 in the state General Assembly would amend several provisions of the Delaware General Corporation Law, including clarifying when a corporation may employ emergency bylaws for running company affairs during a major disruption.
The proposed changes would also sanction holding annual shareholder meetings virtually and pushing out dividend payments in response to the COVID-19 pandemic.
The legislation proposes to amend the emergency bylaws provisions in DGCL Section 110, which say that corporations may adopt such measures during circumstances that prevent them from following their normal requirements for governance and operation. Emergency bylaws can include relaxed quorum and notice requirements for director meetings and provide other measures for the temporary running of a company under exigent circumstances.
DGCL Section 110, adopted in 1962, provides that a corporation’s emergency bylaws may apply during an attack on the U.S. or other locations where the company operates or holds board or shareholder meetings or “during any nuclear or atomic disaster,” “any catastrophe” or similar emergency conditions.
House Bill 341 would clarify that “catastrophe” for purposes of the statute includes epidemics and pandemics.
Shareholder meetings, dividends during emergency
The legislation also provides that during an emergency, a corporation’s board may take any actions it deems “practical and necessary” with respect to a shareholder meeting, including postponing it, changing its location or meeting virtually.
Public companies could provide notice of a meeting postponement, location change or virtual format solely by filing notice with the Securities and Exchange Commission.
House Bill 341 further provides that during a qualifying emergency, companies could advance the record date for determining shareholders entitled to dividends, provided the date has not already occurred.
The changes to shareholder meetings would address questions corporations have encountered during the fallout from COVID-19, according to a June 16 article from Delaware law firm Richards, Layton & Finger.
Many corporations provided notices of physical meetings before social distancing measures took effect across the country but later opted for a virtual format to avoid large gatherings. In April, Delaware Gov. John Carney issued an executive order that relaxed notice requirements for corporations switching to virtual shareholder meetings.
The legislation would have a retroactive date of Jan. 1. Richards, Layton & Finger said the bill would more thoroughly address shareholder meeting change notice requirements and resolve uncertainty about the legality of the changes under the executive order.
Further, the bill would provide a safe harbor to corporations that declared a dividend before the pandemic but later sought to push out the payment to preserve cash once the financial impact of COVID-19 became clear, the firm said.