Dutch treat: Netherlands judiciary only goes halfway towards adopting Delaware trilogy in takeover context

Vanderbilt Journal of Transnational Law, Oct, 2008 by Danielle Quinn

The first standard of review--wherein the court is very deferential to board decisions--is predicated on the Delaware General Corporation Law section 141(a), which provides that "[t]he business and affairs of every corporation ... shall be managed by or under the direction of a board of directors." (159) This business judgment rule presumes that directors' decisions are made on "'an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.'" (160) When this rule applies, decisions made by the directors are protected unless the '"party challenging the [board's] decision" meets its burden '"to establish facts rebutting the presumption." (161) To rebut the presumption, the challenging party must show that the directors breached their fiduciary duty of loyalty or of care. (162) "If the business judgment rule is not rebutted, a 'court will not substitute its judgment for that of the board if the [board's] decision can be attributed to any rational business purpose.'" (163) This standard is typically very easy to meet. (164)

The second set of standards are intermediate ones, defined by common law and named for the cases in which they were pronounced. (165) The relevant standards for takeover law are Revlon, Unocal, and Unitrin. (166) Under Revlon, the directors have a duty to achieve the highest price reasonably available for the shareholders in a sale-of-control transaction. (167) The Revlon standard, as clarified by Paramount Communications, Inc. v. QVC Network, Inc., is triggered by "a pending sale-of-control transaction, regardless of whether or not there is to be a break-up of the corporation." (168) A change of control occurs "when a majority of a corporation's voting shares are acquired by a single person or entity, or by a cohesive group acting together." (169) The Delaware courts will examine the board's conduct under the heightened Revlon standard only in the sale-of-control context. (170)

The Unocal standard is triggered when directors "unilaterally adopt defensive measures in reaction to a perceived threat." (171) The Unocal test is two-pronged: first, the directors must show that they had "reasonable grounds for believing that a danger to corporate policy and effectiveness existed"; second, they must show that the defensive measure chosen was "reasonable in relation to the threat posed." (172) The result of satisfying both prongs is the business judgment rule standard of review. However, if either prong is not satisfied, then the board's action receives an enhanced level of scrutiny under Unitrin. (173)

The Unitrin analysis adds an additional layer to the Unocal analysis. Unitrin "reaffirmed the power of directors to take reasonable steps to resist hostile bids." (174) In applying Unocal, the Delaware Supreme Court ruled that "a court should engage in a two step process: first, the court should determine whether the defensive steps were 'coercive or preclusive'; second, if the defensive steps were not 'coercive or preclusive,' then the court should determine whether the defensive conduct falls within a 'range of reasonableness." (175)