Wachtell Lipton's "Use of Special Committees in Conflict Transactions" provides a Delaware law-focused overview of the key considerations involved in the decisions of whether, when, and how to form a special committee in conflict transactions, such as transactions involving controlling stockholders, corporate insiders or affiliated entities - including “going private” transactions or purchases/sales of assets or securities from/to a related party.
The instructive memo discusses circumstances that may trigger a heightened standard of judicial review (i.e., entire fairness) and how that standard is applied in conflict transactions, and explains the important role of a properly formed, authorized, and functioning special committee in garnering review of the board's actions under the more favorable business judgment standard. Key components of an effective special committee process - identified as: (i) a properly constituted committee of independent and disinterested directors selected by the independent and disinterested members of the board, (ii) with an appropriately broad mandate from the full board, and (iii) with its own legal and financial advisors - are explained in detail and with reference to relevant case law for context and further reference.
The memo also addresses other inherently germane topics including documentation/record-keeping, the special committee's interactions with conflicted individuals, and more.
Access additional information & resources on our Special Board Committees page. This post first appeared in the weekly Society Alert!