MONTH-IN-BRIEF (Aug 2021)
Substantive Changes Made to Delaware’s LLC Act
By Tarik J. Haskins
On August 1, 2021, amendments to the Delaware Limited Liability Company Act (the “Act”) became effective that include a number of significant substantive changes. In order to provide a rule different from the rule applied in Composecure L.L.C. v. Cardux LLC, 206 A.3d 807 (Del. 2018), and Absalom Absalom Trust v. Saint Gervais LLC, 2019 WL 2655787 (Del. Ch. June 27, 2019), Section 18-106 of the Act was amended to add a new subsection (e) that provides a safe harbor procedure for ratifying acts or transactions that are void or voidable. New Section 18-106(e) of the Act provides that an act or transaction that would otherwise be void or voidable can be ratified by the persons whose approval would be required under the limited liability company agreement (i) for such act or transaction to be validly taken or (ii) to amend the limited liability company agreement in a manner that would permit such act or transaction to be validly taken. Also, Section 18-305(g) of the Act was amended to change the rule set forth in Murfey v. WHC Ventures, LLC, 236 A. 3d 337 (Del. 2020), to provide by default that if a member is entitled to obtain information for a stated purpose, pursuant to the Act or a limited liability company agreement, such member’s right shall be to obtain such information as is “necessary and essential” to achieving that purpose. The default rule set forth in Section 18-305(g) of the Act may be expanded or restricted in the applicable limited liability company agreement. Finally, Section 18-407 of the Act was amended to change the current law, as applied in Wenske v. Bluebell Creameries, Inc., 214 A.3d 958 (Del. Ch. 2019), to provide that a member or manager may delegate any of its respective rights, powers or duties irrespective of whether it has a conflict of interest with respect to the matter as to which such rights, powers or duties are being delegated. The amendments to Section 18-407 of the Act will confirm an important practice by which a conflicted member can delegate authority over a conflicted matter, which can be a useful mechanism to authorize a conflicted transaction by a committee made up of independent non-conflicted persons.