On October 16, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued its summary instructions and guidance  (the “CCAR 2015 Instructions”) for its supervisory Comprehensive Capital Analysis and Review program for 2015 (“CCAR 2015”) applicable to bank holding companies with $50 billion or more of total consolidated assets (“Covered BHCs”). Thirty-one institutions will participate in CCAR 2015, including the 30 Covered BHCs  that participated in CCAR in 2014, as well as one institution that is new to the program. 
Posts Tagged ‘Sullivan & Cromwell’
In a bench ruling  issued on October 14, 2014, the Delaware Court of Chancery (VC Laster) declined to dismiss fiduciary duty claims against the directors of Healthways, Inc. (“Healthways”) and an aiding and abetting claim against SunTrust Bank (“SunTrust”), the lender administrative agent, for entering into a credit facility of Healthways that has a dead hand “proxy put” provision. The provision at issue allows the lenders to declare an event of default and accelerate the debt in the event that a majority of the Healthways board during a period of 24 months is comprised of “non-continuing” directors, including directors initially nominated as a result of an actual or threatened proxy contest. Rejecting the director defendant claims that the fiduciary duty claims were not ripe, the Court stated that Healthways’ stockholders may presently be “suffering a distinct injury” from the deterrent effect of the “proxy put” and the fact that the dissident directors are non-continuing directors under the “proxy put.” In addition, in a further significant development, the Court stated that its prior holdings on the “entrenching” nature of “proxy puts” placed SunTrust on notice that a borrower’s board runs the risk of breaching their fiduciary duties if they accept dead hand “proxy puts” in the borrower’s debt documentation without negotiating significant value in return. Because the dead hand “proxy put” was included in Healthways’ credit agreement shortly after the threat of a proxy contest had occurred, the Court found that there was sufficient “knowing participation” pled to survive a motion to dismiss the aiding and abetting claim against SunTrust.
On September 29, 2014, the Financial Stability Board (the “FSB”) published a consultative document concerning cross-border recognition of resolution actions and the removal of impediments to the resolution of globally active, systemically important financial institutions (the “Consultative Document”). The Consultative Document encourages jurisdictions to include in their statutory frameworks seven elements that would enable prompt effect to be given to foreign resolution actions. In addition, due to a recognized gap between the various national legal resolution regimes that are currently in place and those recommended by the FSB, the Consultative Document sets forth two “contractual solutions”—that is, resolution-related arrangements to be implemented as a matter of contract among the private parties involved—to address two underlying substantive issues that the FSB considers critical for orderly cross-border resolution, namely:
In an opinion  issued on September 9, 2014, the Delaware Court of Chancery (VC Glasscock) held that in a controlling stockholder freeze-out merger subject to entire fairness review at the outset, disinterested directors entitled under a company’s charter to exculpation for duty of care violations cannot prevail in a motion to dismiss even though the claims against them for breach of fiduciary duty are not pled with particularity; instead, the issue of whether they will be entitled to exculpation must await a developed record, post-trial. The decision once again highlights the litigation cost that will be imposed on companies engaged in controlling stockholder freeze-out mergers for failing to employ both of the safeguards that Delaware has endorsed to ensure business judgment, instead of entire fairness, review—(1) an up-front non-waivable commitment by the controller to condition the transaction on an informed vote of a majority of the minority stockholders and (2) approval of the transaction by a well-functioning and broadly empowered special committee of disinterested directors. At the motion to dismiss stage, disinterested directors effectively will be treated in the same manner as controllers and their affiliated directors.
[On September 10, 2014], the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission (collectively, the “Agencies”) provided an addition to their existing list of Frequently Asked Questions (“FAQs”) addressing the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”
On 23 July 2014, the European Commission fined Marine Harvest ASA €20 million for failing to notify its acquisition of Morpol ASA in accordance with the EU Merger Regulation and closing the transaction prior to receiving the European Commission’s approval. This is the first time the European Commission has imposed a fine in relation to a two-step transaction comprising a sale of a block of shares followed by a mandatory public bid for the remainder of the target’s shares. The level of fine is a further reminder that failure to comply with the EU Merger Regulation can have significant financial and reputational consequences.
During the 2014 proxy season, governance-related shareholder proposals continued to be common at U.S. public companies, including proposals calling for declassified boards, majority voting in director elections, elimination of supermajority requirements, separation of the roles of the CEO and chair, the right to call special meetings and the right to act by written consent. While the number of these proposals was down from 2012 and 2013 levels, this decline related entirely to fewer proposals being received by large-cap companies, likely due to the diminishing number of large companies that have not already adopted these practices. Smaller companies, at which these practices are less common, have not seen a similar decline and, if anything, are increasingly being targeted with these types of proposals.
On June 10, 2014, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (collectively, the “Banking Agencies”) and the Securities and Exchange Commission (the “SEC”) released substantially identical Frequently Asked Questions (“FAQs”) addressing six topics regarding the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”
Following the Delaware Court of Chancery’s decision in July 2013 upholding the validity of exclusive forum bylaws, a number of corporations, including over two dozen S&P 500 companies, amended their bylaws to include these provisions, and the provisions were commonly included in the charters or bylaws of companies in initial public offerings. Many public companies, however, determined to take a wait-and-see approach, in order to assess whether non-Delaware courts would enforce the bylaw and whether companies that adopted the bylaw received negative investor feedback in the 2014 proxy season or otherwise.
In a summary judgment opinion issued on April 8, the Delaware Court of Chancery (VC Laster) held that in a change of control case governed by enhanced scrutiny, directors and officers could incur personal liability for a breach of their duty of loyalty if it is established that they acted unreasonably in conducting the sale process and allowed interests other than the pursuit of the best value reasonably available, i.e. an improper motive, to influence their decisions. The Court expressly rejected arguments that directors (or officers) could only be found to have acted in bad faith and thereby be personally liable for a breach of the duty of loyalty if it were determined that they were motivated by an intent to do harm or had consciously disregarded known obligations and utterly failed to attempt to obtain the best sale price, as articulated by the Delaware Supreme Court in Lyondell Chemical Company v. Ryan. Applying the new standard to the case before it, the Court concluded that the evidence against the director defendants was not sufficient to impose personal liability under the new standard, but that the evidence was sufficient to proceed to trial against the officers on the same theory.