USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang, Gregory Gewirtz and Vinita Sithapathy, Linklaters
sion, of all material information reasonably available to them and, based on such information, must act with due care in discharging their duties. Generally, direc - tors will be liable for a breach of their duty of care only if they are found to have acted with gross negligence. The duty of loyalty requires directors to act without self-interest and in the best interests of the corpora - tion and its stockholders. Directors must refrain from fraudulent conduct, self-dealing and actions intended to entrench themselves in office. Furthermore, direc - tors may not take personal advantage of business opportunities at the expense of the corporation. Direc - tors found to have breached their duty of loyalty may be subject to personal liability under Delaware law. While Delaware’s approach to directors’ duties emphasises “the primacy of the stockholder”, some other states permit, and even require, the board to consider interests of other constituencies such as Boards of directors will sometimes establish special or ad hoc committees, comprised of independent direc - tors, to negotiate the terms of a potential business combination. Such special committee of the board will often be formed where the majority of the directors are not independent (or are conflicted), or when a control - ling shareholder stands on both sides of the potential transaction or will receive different consideration in the transaction or in any side agreement to the detri - ment of the other shareholders. A properly functioning special committee should select and retain its own independent advisers who are free of conflicts, and the committee must be fully informed, both regarding the terms of the transaction and in terms of diligence. To fulfil their duties, the directors on the committee must actively oversee the conduct of the transaction. 8.3 Business Judgement Rule Under the “business judgement rule”, Delaware courts will presume that directors have satisfied their fiduci - ary duties if they have made their decisions in good faith, on the basis of a reasonable investigation and after careful consideration of all material factors rea - sonably available, in accordance with what they hon - employees, customers and suppliers. 8.2 Special or Ad Hoc Committees
estly believe to be the best interests of the corporation and its stockholders. In applying the business judgement rule, Delaware courts do not measure, weigh or quantify directors’ judgements, nor will courts decide whether they are reasonable in the usual context, but instead will only consider whether a rational decision-making process has been demonstrated. However, Delaware courts will apply heightened standards of review in certain contexts, as noted below. Enhanced Scrutiny Unocal: defensive measures Prior to taking defensive action (see 9. Defensive Measures ) against a threatened acquisition of control or takeover of the corporation, the board must – after a reasonable investigation – have reasonable grounds for believing there is a danger to corporate policy and effectiveness. Further, the directors must show that the action taken was “reasonable in relation to the threat posed”. Revlon: sale or break-up of the company If the board of directors authorises the sale of con - trol or break-up of the company, the directors have a duty to seek the highest value reasonably available. This (Revlon) duty will generally be triggered if a com - pany initiates an active bidding process seeking to sell itself or to effect a business reorganisation involving a clear break-up of the company or if, in response to a takeover proposal, a company abandons its long-term strategy and seeks an alternative transaction involv - ing a break-up or sale of the company. If the Revlon duty is not met, the board decision will be reviewed under the more exacting standard of entire fairness (discussed below) instead of the business judgement rule. Entire Fairness: Conflicted Transactions The presumptions of the business judgement rule will not automatically apply to transactions involving con - flicted directors or a controlling stockholder. However, Delaware law may provide for a “safe harbour” for such transactions whereby such transactions may get the benefit of business judgement rule review if the transaction is conditioned up-front on certain pro - cedural requirements. The Amendments adopted in
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