- In a recent decision, Delaware continued its longstanding practice of enforcing unambiguous bylaws, affirming a company’s rejection of an activist nomination notice for failure to comply with requirements of its advance notice bylaws, including that nominations may be made only by a shareholder of record and that a company’s required form of nominee questionnaire may be requested only by a shareholder of record
- Advance notice bylaws will have increased importance with the coming implementation of the SEC’s new universal proxy rules in September 2022, and companies may want to consider reviewing their bylaws to ensure the benefits of state-of-the-art provisions, including certain modifications tied to the new universal proxy rules
As we have noted before, advance notice bylaws are a near-universal feature of the organizational documents of public companies. These provisions establish informational, timing and procedural requirements that shareholders must satisfy as a condition to nominating directors or making a business proposal at a shareholder meeting. In a string of cases over the last three years, Delaware courts have repeatedly upheld enforcement of these provisions by boards, finding that they are useful in permitting “orderly meeting and election contests,” giving companies “sufficient time to respond to shareholder nominations” and “preventing last-minute surprise attacks by third parties for control or board representation.”
In a recent decision involving a hostile takeover bid and associated proxy contest targeting one of our clients, the Delaware Chancery Court once again followed this path, affirming our client’s rejection of the bidder’s nomination notice for failure to comply with the unambiguous requirements of its advance notice bylaws.