On July 16, 2020, Governor John Carney of Delaware signed into law House Bill 341 to amend Title 8 of the Delaware General Corporation Law (DGCL) which, among other things, (1) solidifies a pandemic as an emergency situation, (2) expands the special powers of stockholders and directors during such emergency conditions, and (3) allows for the option to use electronic transmission documentation and electronic signatures for the execution of documents (previously limited to hardcopy and manual execution only).
While DGCL § 110(a) already allowed the board of directors of corporations to adopt emergency bylaws, as amended, it expressly calls out epidemics and pandemics as examples of such emergency situations. The 2020 amendments allow emergency bylaws to be adopted by a majority vote of directors present, which is logistically easier during a time of crisis than the former quorum requirement. Furthermore, the 2020 amendments widen the scope of what boards of directors can do via emergency bylaws by stating a board can take any action it deems “practical and necessary” to address the circumstances of meetings of stockholders in emergency conditions by a majority vote. Section 110(i) provides guidance for what actions may be deemed practical and necessary during emergency conditions including:
- postponing stockholder meetings to a later time or date;
- notifying stockholders of any postponement or change of place of the meeting (or a change to hold the meeting remotely) solely by a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to § 13, § 14 or § 15(d) of such Act; and
- changing record and payment date of declared dividends for which the record date has not occurred.
The key provision in the recent amendments regarding the wider use of electronic signature and documentation is § 116. Subsection (a) of § 116 previously allowed for documentation, transmission and execution by electronic means, however, it limited the use by providing examples of restrictions in subsection (b). One such line item previously listed in § 116(b) was the restriction on the use of electronic signatures of incorporators, stockholders, or directors for consents in lieu of meetings.
The recent amendment to § 116(b) not only completely removed the restriction on electronic signature use for consents in lieu of meetings, but went a step further by clarifying that the ability to use electronic signatures and electronic transmission of documents set forth in § 116(a) shall be enforceable unless expressly prohibited in a corporation’s certificate of incorporation or bylaws (or § 116(b)). This means corporations now have the option to use safer, socially-distant electronic means even for consents in lieu of meetings, and may rely on § 116 as authority to do so without taking any further corporate action.
Corporations should note that, while the recent amendments to DGCL Title 8 both widen the scope of power for directors during emergency conditions and also generally create greater flexibility in using electronic means for documentation and electronic signature, these expansions are not absolute. Corporations should consult with corporate counsel and refer to DGCL Title 8 § 110 and § 116 for the remaining limitations on the use of electronic means as well as the reporting requirements corporations must still adhere to, even under emergency bylaw actions.