Delaware’s renowned corporation law rests upon a director-centric premise, reflected in Section 141 of the Delaware General Corporation Law (“DGCL”), that the business and affairs of corporations are to be managed by boards of directors. In carrying out this mandate, directors owe fiduciary duties requiring that they act in an informed manner (i.e., the duty of care) and only in the best interests of the corporation and all of its shareholders (i.e., the duty of loyalty). Consistent with the legislative judgment placing directors at the helm of the corporate enterprise, and mindful of the necessary risk-taking inherent in that role, the Delaware courts afford unconflicted, informed, and properly motivated directors wide latitude in carrying out their duties. That deference is reflected in the venerable business judgment rule, under which courts will not second-guess the decisions of independent and disinterested directors acting in good faith and following an appropriate decision-making process.

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The increasing involvement of private equity firms in M&A transactions has not gone unnoticed in the courts.  Our recent article in the New York Law Journal, entitled New Wave of M&A Litigation Attacks Private Equity Deals, addresses several recent decisions from the Delaware Court of Chancery involving private equity firms and management buyouts.  The article concludes that, while the players in the M&A market may have changed, the rules of the game remain the same where the board of directors decides that it’s time to sell the company.

The full article is available here.