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Aug. 20 — In upholding written consents delivered by a majority of ACell Inc. shareholders, the Delaware Chancery Court Aug. 18 held that a new slate of directors were validly elected.
Vice Chancellor Donald F. Parsons Jr. concluded that the incumbent directors, who refused to recognize the consents as valid, failed to provide sufficient justification for the court to “take the extraordinary step of setting aside the written consents.”
The defendant incumbent directors specifically sought to have the consents set aside on equitable grounds, contending among other things that they were procured by misleading disclosures.
Parsons, however, concluded that the plaintiff, a stockholder who solicited the consents, was not under a duty of disclosure because he was not a director, officer, controlling stockholder or member of a control group.
The court additionally determined that even if the shareholder owed a duty of disclosure, the defendants failed to show that the alleged disclosure violations justified setting aside the consents.
The court also addressed the fairness of the plaintiff's solicitation more generally. Specifically, the court found that the incumbent directors failed to meet their heavy burden of showing that inequitable circumstances existed.
Parsons found that in addition to specific contentions, the incumbent directors persistently claimed that the shareholder's solicitation was unfair and that their fallback argument was that they believed they could do a better job than the new slate of directors.
However, Parsons found that adopting a rule that would allow incumbents to set aside consents on this ground would impinge on the rights of shareholders to act independently of directors as set forth in Delaware General Corporation Law §228.
“Based on the record, and as already discussed, I do not doubt the Incumbent Board believed that they would manage the Company better than the New Board,” Parsons wrote. “But in the context of a consent solicitation under Section 228, the Board is not entitled to a full and fair debate. The DGCL and ACells charter clearly enable ACells stockholders to act by written consent, without notice.”
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The opinion is available at http://www.bloomberglaw.com/public/document/KYLE_C_KERBAWY_SR_PlaintiffCounterclaim_Defendant_v_JOHN_MCDONNEL.
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