ECGI Conversations - Michal Barzuza

Dr. Tom Gosling interviews Prof. Michal Barzuza, Professor of Law at the University of Virginia, on her recent topical paper, "Nevada v. Delaware: The New Market for Corporate Law".

The key discussion points are:

•    Nevada law provides significantly more protections for managers than the Delaware equivalent.

•    The additional protections arise directly through features such as the exculpation statute which holds directors liable only for intentional misconduct, fraud, or knowing violation of the law, and through the deference provided to directors in takeover situations.

•    But also relevant are factors such as the lack of shareholder inspection rights, which make it more difficult for plaintiffs to get claims off the ground in Nevada.

•    The differences between Delaware and Nevada law are so significant as to create the prospect of a redomicile from Delaware to Nevada being treated as a self-dealing transaction and so subject to the entire fairness standard in Delaware.

•    We discuss a current case that may shed light on how Delaware courts may consider this question and its implications for companies redomiciling in the future.

•    Other jurisdictions, such as Texas, are not so different to trigger the entire fairness standard on redomicile, but still provide a potential threat to Delaware’s supremacy.

•    History suggests that the Delaware system has responded to such threats in the past by adapting either the law directly or how it is applied, creating at least some risk of a“race to the bottom” in corporate law as a result of competition between states