Fried Frank Discusses the Obligations of LLC Directors and Managers

There are now more than twice as many entities formed in Delaware as LLCs and other alternative entities as are formed as corporations. Private equity funds and hedge funds often are formed as LLCs or limited partnerships to take advantage of the structural flexibility and tax treatment available. A key advantage is the ability to modify or eliminate traditional corporate-type fiduciary duties and, specifically, to facilitate conflicted transactions which arise due to the fund managers’ various roles in managing multiple funds. Below we outline the key principles relating to the obligations of LLC directors under Delaware law, offer related practice … Read more

Fried Frank Discusses Delaware Decision Absolving LCC Board of Duty to Maximize Price

In Miller v. HCP (Feb. 1, 2018), the Court of Chancery dismissed claims made against the members of a limited liability company board, a majority of whom had been appointed by the private equity firm that was the company’s controlling stockholder, for approving a sale of the company to an unaffiliated third party that was championed by the controller—without attempting to maximize the price.

Under the LLC operating agreement’s “waterfall” provisions governing the allocation of proceeds on a sale of the company, the controller was entitled to receive almost all of the proceeds of any sale up to $30 million … Read more

Fried Frank explains BMC Software and the Court’s Ongoing Incremental Path to Increased Reliance on the Merger Price in Appraisal Cases

The Delaware Court of Chancery has been on a slow but clear path toward increased reliance on the merger price in determining fair value in appraisal cases. While the court’s reliance on the merger price as the best indicator of fair value has been more frequent recently, the court appears to continue to struggle with a fundamental conflict in its approach to determining fair value.

On the one hand, the court has explicitly recognized that, when a merger price has been derived through an arm’s-length sale process, involving parties with a real economic stake in the outcome and during which … Read more

Fried Frank discusses Expansion of Aiding and Abetting Liability for “Gatekeepers” — Stewart v. Wilmington Trust

In Stewart v. Wilmington Trust (March 26, 2015), the Delaware Chancery Court characterized the outside auditor and the administrative management company for certain captive insurance companies as having a “gatekeeping role” for the companies. On that basis, the court refused to dismiss claims against them for aiding and abetting the alleged breaches of fiduciary duties of the companies’ directors. The decision expands the Chancery Court’s recent focus on the gatekeeper concept, underscoring the potential for aiding and abetting liability for advisors.

Focus on advisors who have a “gatekeeper” role. An advisor to a board may have aiding and … Read more

Fried Frank discusses Proposed Appraisal Statute Amendments, Which Would Permit Companies to Reduce Their Interest Cost

Proposed amendments to the Delaware appraisal statute announced recently are expected to be adopted by the Delaware Legislature. The stated purpose of the amendments is to reduce the recent rise in the volume of appraisal petitions. If adopted, the amendments would apply to merger agreements entered into on and after August 1, 2015.

The proposed amendments.

  • Option for companies to reduce interest cost (the “Interest Reduction Amendment”). This Amendment would provide an option for a company in an appraisal proceeding to pay a cash amount to the dissenting shareholders before the appraisal proceeding ends (an “Upfront Payment”). Statutory interest would

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