How The Proposed Fix To Delaware’s Stockholder Consent Statute Can Be Fixed
Earlier this week, I wrote about a proposed amendment to Section 228 of the Delaware General Corporation Law. The amendment, which is proposed by The Corporate Council of the Corporation Law Section of the Delaware State Bar, would essentially condition the effectiveness of a stockholder consent upon the delivery of a sufficient number of consents with 60 days of the first date on which a consent is delivered to the corporation (the proposed changes appear below). Thus, the amendment would change current law by substituting the date of first delivery for the earliest dated consent. While this change addresses a concern that I had identified more than a quarter century ago, I think that the amendment could be improved.
By focusing on the date of delivery, the effectiveness of consents remains untethered from the record date. That is a mistake. Under DGCL Section 213(b), a board of directors may fix a record date for the determination of stockholders entitled to consent to a corporate action. If the board fails to establish a record date and no prior action on its part is required by the DGCL, the record date is the first date on which a signed consent is delivered to the corporation in the manner specified in Section 213. My proposal is that the 60 day period in Section 228 should be linked to the record date and not the date of delivery of the first consent. Thus, the first sentence of Section 228(c) under my proposal would read:
“No written consent will be effective to take the corporate action referred to therein unless written consents signed by a sufficient number of holders or members to take action are delivered to the corporation in the manner required by this section within 60 days of the record date fixed or established pursuant to § 213(b) of this title.”
Adoption of my proposal would ensure that a sufficient number of consents are delivered within a reasonable time after the record date. That would not necessarily be the case under the Corporate Council’s proposal. For example, a board could meet on January 1 and fix a record date of January 10. If the record date is fixed for a meeting, the meeting must be held not more than 60 days later. If the board fixes a record date for action by written consent of the stockholders, there is no outside limit. The only constraint under the Corporate Council’s proposal would be that a sufficient number of consents are delivered within 60 days of the first date of delivery of a written consent to the corporation. Thus, it is possible that consents could be signed by persons who have long ceased to be stockholders of the corporation.
The Corporate Counsel’s proposed amendment to Section 228(c):
Every written consent shall bear the date of signature of each stockholder or member who signs the consent, and noNo written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this section to the corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders or members are recorded in the manner required by this section within 60 days of the first date on which a written consent is so delivered to the corporation. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Any person executing a consent may provide, whether through instruction to an agent or otherwise, that such a consent will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made, and, for the purposes of this section, if evidence of such instruction or provision is provided to the corporation, such later effective time shall serve as the date of signature. Unless otherwise provided, any such consent shall be revocable prior to its becoming effective.