Delaware Business Litigation Report

Court of Chancery Rejects Invalid Bylaw And Charter Provisions

Lions Gate Entertainment Corp.v. Image Entertainment Inc., C.A. No. 2011-N, 2006 WL 1668051 (Del. Ch. June 5, 2006). The Court of Chancery has again ruled that provisions in corporate bylaws or certificates of incorporation that violate the Delaware General Corporation Law are invalid. Thus, the Court struck down a bylaw provision that attempted to give the directors the power to amend the bylaws when that power was not conferred by the certificate of incorporation as required. The Court also voided a certificate of incorporation provision that tried to give the directors alone the right to amend the certificate. This decision also illustrates the need to carefully implement a staggered board provision. The company tried to do so starting in 2005, but the Court held the provision did not take affect until 2006. Limitations on voting rights are strictly construed in Delaware and the failure to clearly put the staggered board into place in 2005 meant that it would be postponed until the 2006 meeting. Share