Court Of Chancery Enforces Nearly Ironclad Safe Harbor For Conflict Transactions Involving Alternative Entity
This is an important decision because it enforces a nearly ironclad protection against any attack on the decision of a special committee to approve a conflict transaction for a LLP and an LLC.
The LLP agreement provided that the decision of a special committee of independent directors to approve a conflict transaction was to be treated as “conclusively” satisfying the LLP agreement’s requirement that the deal be “fair and reasonable.” The Court held that language precluded any attack on the deal on the basis that it was not fair to the members of the LLP or the LLP itself. In short, even if the transaction was not objectively fair by any standard, the Court would not review it for fairness.
While the decision does recognize there may be some limit on such deal protections (such as bribery of the special committee), this level of deal protection is very high indeed.Share