Delaware Corporate Law Overhaul Gets First Legislative Hearing

Proposed corporate law changes that are dividing Delaware’s legal community went to legislators Wednesday, when a state Senate committee heard from several of the measure’s backers and members of the public.

The version of Senate Bill 21 set for a vote as soon as this week includes last-minute tweaks to the draft approved Monday by the Corporation Law Section, an influential state bar committee. The bill no longer gives judges in ongoing cases explicit permission “to reach an outcome consistent with one that would be dictated by this act"—language that drew fire for appearing to suggest the changes could apply retroactively to Elon Musk’s record $56 billion pay package, which a Delaware judge voided last year.

The world’s wealthiest person has bombarded the state with criticism since his loss in Delaware’s Chancery Court—a decision that’s currently on appeal—while moving his businesses away from Delaware and urging other companies to follow. Gov. Matt Meyer and other supporters of the legislation have cited those “DExit” fears as their motivation for proposing amendments that would shift legal power from minority investors toward insiders like Musk.

The bill’s backers have also repeatedly downplayed the billionaire’s influence in public statements, including during Wednesday’s hearing. “His companies are all gone,” said Wilson Sonsini Goodrich & Rosati PC partner Amy Simmerman. “His commentary had a megaphone effect, but this legislation expressly doesn’t help him, and we’re addressing deeper concerns.”

Simmerman also rejected the idea that the small trickle of corporate departures represents the extent of the discontent among business leaders. “By the time you have the hard data that some people seem to want, it’s too late,” she said, adding that the proposals are already calming the waters.

Those statements drew pushback from some members of the public, including Stanford Law scholar James An, who said over Zoom that the legislation would “enable Elon Musk to take advantage of pensioners.”

“This bill is a shakedown, pure and simple, and they’re preying on your fear” that Delaware could lose its prized status as America’s corporate capital, An said to the legislature. “You will make billionaires’ lives better, but you will make the lives of your constituents worse.”

Records Access

Overall, most members of the public said they supported SB21 due to concerns about DExit, particularly about the loss of $2 billion in corporate franchise fees that represent 25% of the state budget. Many of the speakers were affiliated with major employers or industry associations.

State Sen. Bryan Townsend, a sponsor of the legislation, also announced another change to the version of the bill sent to the chamber by the Corporation Law Section. Provisions making it significantly harder for shareholders to get the texts and emails of corporate leaders during the litigation planning stages will no longer apply retroactively, Townsend said.

That creates a disconnect with the way shareholder attorneys commonly use the access law known as Section 220, said Bleichmar Fonti & Auld LLP associate Robert Lackey. Judges have for years encouraged plaintiffs’ lawyers to get as many documents as possible before filing fiduciary breach claims and to use those records cases as placeholders.

Because other sections of the statute do apply retroactively, shareholders generally won’t be able to bring all the claims supported by whatever corporate files they do get, according to Lackey. “It will hurt my clients,” he said.