UK: August 22 Corporate News Update: SEC Imposes Fines For Restricting Whistleblower Payments To Former Employees, And Delaware Limits Appraisal Rights And Has Its Unclaimed Property Audit Procedures Challenged In Federal Court
This week's corporate news roundup includes an overview
of new restrictions on stockholder appraisal rights under the
Delaware General Corporation Law, and a win in federal court for a
company claiming that Delaware's unclaimed property audit
techniques violated its substantive due process rights. The SEC
also imposed a heavy fine on a public company that used severance
agreements to discourage former employees from acting as SEC
DELAWARE LIMITS STOCKHOLDER APPRAISAL RIGHTS
Delaware recently enacted amendments to the Delaware General
Corporation Law that include new limitations on stockholder
appraisal rights. In general, minority stockholders in a Delaware
corporation that is acquired in a merger have a right to request a
judicial determination of the fair value for their stock and be
paid that amount in lieu of the merger consideration. The recent
amendments require Delaware courts to dismiss any appraisal
proceeding unless (a) the number of shares entitled to appraisal
exceeds 1% of the outstanding shares in the class or series of
stock that is eligible for appraisal; (b) the payment to be made
for such shares in the merger exceeds $1,000,000; or (c) the merger
is between a parent entity and its subsidiary. The recent
amendments also permit the surviving corporation to require
appraisal petitioners to accept a voluntary payment prior to a
Delaware court's final valuation. In doing so, the surviving
corporation may reduce the amount of accrued statutory interest
that it would otherwise be required to pay on any appraisal award.
For more information, click here.
SEC FINES PUBLIC COMPANY FOR SEVERANCE AGREEMENT RESTRICTIONS
ON POTENTIAL WHISTLEBLOWERS
The SEC recently imposed a $265,000 fine against BlueLinx
Holdings Inc. for including terms in severance agreements that
impeded former employees' participation in an SEC whistleblower
program under the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 that provides financial incentives to
encourage whistleblowers to report possible U.S. securities law
violations. The severance agreements required former employees to
waive any right to receive a financial reward in connection with
divulging company confidential information to the SEC. The
severance agreements also required former employees to notify the
company's legal department prior to disclosing to third parties
any financial or business information about the company (with the
SEC not being expressly carved out of this restriction). The SEC
determined that the restrictions undermined the SEC whistleblower
program and also required the company to include a provision in all
of its severance agreements that clarifies employees' rights to
disclose information to interested government agencies. For more
information, click here.
FEDERAL COURT RULES DELAWARE UNCLAIMED PROPERTY AUDIT TECHNIQUE
VIOLATES DUE PROCESS
A federal court recently ruled that Delaware's unclaimed
property audit techniques use extrapolation methods that violate
unclaimed property holders' substantive due process rights. In
2008, Delaware auditors had requested unclaimed property records
dating back over several decades, a longer period than the company
typically held records under its record retention policy. When the
company was unable to produce certain older records, the Delaware
auditors extrapolated from the information available to them and
determined that the company owed Delaware over $1 million in
unclaimed property. In reaching its decision, the court stated that
it was particularly troubled by Delaware's decades-long wait to
conduct an audit, its attempt to circumvent a six-year statute of
limitations on unclaimed property actions, its failure to give the
company notice that it would need to indefinitely retain unclaimed
property records in order to defend against
"unmeritorious" audits, and the Delaware auditors'
failure to follow fundamental principles of estimation when using
available information to calculate unclaimed property liability.
For more information, click here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The recent case of Dickinson v NAL Realisations (Staffordshire) Ltd is a "101" guide to how not to run a small business, providing insight into the pitfalls that can await any director or shareholder...
As the Brexit negotiations start, one direct impact is an interest from clients and advisers looking to have flexibility in their organisational structure ahead of any legislative or other changes being implemented.
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
Any UK companies doing business with the rest of the EU, or even just in the UK but relying on customers and suppliers who deal with the rest of the EU, should be keeping an eye out for the ramifications of Brexit.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).