Corporations - Kahan - One Pager Rajiyah PDF

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Stefan Rajiyah Corporations One Pager CREDITORS SUING CORPORATION   

Agency Cost of Debt- fear company will act in interest of SHs, not creditors Limited Liability- SHs not liable beyond investments, so risk of business failure pushed onto creditors o Is this good policy? Easterbrook vs. Hansmann CLAIMS o 1) Fraudulent Conveyance Laws- Gleneagles  Factual Hook: LBOs  Elements: (1) Conveyance or obligation by person who will be rendered insolvent (2) without fair consideration; (3) unreasonably small capital after the transaction o 2) Equitable Subordination- Costello  Factual Hook: Bankrupt corporation; creditors want priority over insiders/SHs for claims  Elements: Insider must behave unfairly or wrongfully towards corp. & creditors (undercapitalization + withdrawal) o 3) Piercing the Veil- Zaist, Walkovsky  Factual Hook: closely-held corporation; go after deeper pockets of shareholders  Elements: (1) SH have complete control/domination, (2) SH commit fraud or wrong, (3) Legislature already provide protection?

SHAREHOLDERS SUING CORPORATION 

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Direct vs. Derivative Suit o Direct: SH being cashed out, disclosure issues, statutory claims  bring suit o Derivative Suit  sue on behalf of corporation e.g. corporation paying too much money for target Derivative Suit Analysis o 1) Demand Made?; 2) If no  Aronson/Rales to determine if futile/excused; 3) if so, SLC  Zapata CLAIMS o 1) Breach of Fiduciary Duty  Would enhanced scrutiny of Revlon apply instead? (e.g. LBO in Del Monte); if so  Revlon  Aiding & Abetting as a work around, exculpates LBO target & gets Financiers (gatekeeper) 

Is there a friendly tender offer?  CNX, Siliconix, McMullin  Initial Standard: EF; Cleansing Acts: (1) majority of minority tendered shares and (2) TO negotiated and recommended by a spec comm of indep directors; need both for BJR, otherwise EF  maps onto breaches of loyalty and care (see McMullin)

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Does BOD seem adequately informed?  Care consideration  Van Gorkom, Graham  Initial Standard: BJR unless rebutted by proving gross negligence; Cleansing Act: potential for SH vote to cleanse; if not cleansed  EF

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Does the transaction involve a controlling shareholder  Loyalty Considerations  Is the CSH involved in a self-dealing transaction? (Lynch & Tremont) o Initial Standard: EF; Cleansing Acts: Well-functioning spec. comm and majority of minority SH entitled to vote o Post-MFW: Single Cleansing Act: EF on plaintiff; Two cleansing: BJR  Is the CSH involved in a material conflict of interest transaction  Orman o Post-MFW presumably follows Lynch 5-step analysis

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Does the transaction center on board action (i.e. no CSH)  Loyalty  PNB, Marciano  Self-Dealing concerning compensation, most likely won’t review (Ryan)  Regardless self-dealing (directors on both sides) or material conflict: o Initial Standard: EF unless BJR rebutted; Cleaning Act: unclear what is needed and unclear effect (see outline)

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2) Waste- ONLY APPLIES IF BJR IS CONCLUSION IN BREACH OF FID DUTY CLAIM (Vogelstein)

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3) Corporate Opportunity- Broz  Factual Hook: Did a director/officer take a business opportunity that might belong to corporation  Elements: amorphous 8 factor test

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4) Good Faith  Acting for purpose other than advancing interest of corp (Ryan)  Conscious Disregard of responsibilities (e.g. not informed) ( Disney)  Other possibilities

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5) Voting Claims  1) False/Misleading Statement in Proxy (14a-9- Federal Claim)- Virginia Bankshare  2) Inequitable Conduct (Schnell, Blasius)- Compelling Justification  Factual Hook: BOD inferred with a SH vote (e.g. moved date; undermining goal of vote)  3) Circular Voting Structure (Speiser, DGCL 160c)  Factual Hook: circular ownership structure (Belong to); clear parent-subsidiary relationship  4) Vote Buying (Schreiber)- is purpose to defraud/disenfranchise? If no  EF  Factual Hook: voting agreement supported by consideration personal to SH to get SH’s vote  If CSH wants their vote bought  also a breach of fiduciary duty claim (Delphi)

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6) Appraisal Rights  Factual Hook: SH is facing a freezeout transaction  Subject to procedural and substantive requirements  Will shareholder prefer Entire Fairness or Appraisal Rights?

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7) Securities Fraud- 10b-5 Claim, Federal  Factual Hook: company explicitly lies affecting the buying/selling of stock of shareholder  Elements: (1) materiality of false/misleading statement; (2) causation, (3) reliance- Fraud on Market; (4) Scienter

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8) Insider Trading (Typically claim brought by the gov’t)- 10b-5, Federal  Factual Hook: trading without disclosing material non-public information (silence)  Elements: (1) trading on material non-public info, (2) scienter, (3) Disclose or Abstain Rule  Who is within the scope of the Disclose or Abstain Rule? o 1. Fiduciary Duty Theory to Counterparties- Rule of Origination (Chiarella) o 2. Independent Contractors as Temporary Insiders ( Dirks FN 14) o 3. Misappropriation Theory- Duty to the source of the information ( O’Hagan, Chestman) o 4. Tippee Liability (Rule of Inheritance) (Dirks, Chestman) o 5. Rule 14e-3 for Tender Offers

HOSTILE BIDDERS SUING (IN SHOES OF SHAREHOLDERS)- Revlon vs. Unocal, Which One? 

FACTUAL HOOKS o If one hostile bidder that board responds with poison pill  Unocal Standard o If there is an existing merger agreement and then hostile bidder shows up:  Does the existing merger agreement reflect a change in corporate control?  If Yes (Viacom would control Paramount in name in QVC)  Revlon Triggered  If No (company remained in hands of diffuse group of SHs (not in Warner’s name) in TimeWarner)  Unocal o Is there recognition that the company is for sale? (e.g. hostile bidder then target looks for white knight)  Revlon triggered o Is there inevitable breakup?  Revlon triggered...