Court Of Chancery Clarifies Scope Of Adequate Disclosure To Invoke Corwin
To obtain business judgment rule protection, directors need to make adequate disclosures to the stockholders whose votes directors contend were adequate to invoke the Corwin decision. But exactly what sort of financial disclosures are needed, particularly where there are no audited financial statements available? This decision helps answer that question. At least when the lack of audited statements is due to a failure to restate those statements after the discovery of past errors, the lack of such statements may be enough to show the disclosures were not adequate to fairly inform the stockholders before their vote. This is particularly so when there have not been quarterly reports, an annual meeting or any explanation why the past financial statements have not yet been corrected. This decision is also helpful in pointing out that when directors’ votes are influenced by their receiving extra compensation as a result, there is enough to support a claim of disloyalty to defeat a motion to dismiss.