Client Alert

In Delaware, arms-length negotiations may no longer be sufficient to protect an unwitting lender from a derivative claim brought by a borrower’s shareholder with respect to certain change of control defaults contained in credit agreements. Following a recent spate of lawsuits against lenders in Delaware involving change of control provisions in credit agreements, in negotiating these provisions, lenders should consider how the Delaware courts would perceive such provisions if challenged. If the facts surrounding the inclusion of these provisions are not closely examined, a lender could open itself up to a claim for aiding and abetting a breach of the board of directors’ fiduciary duty, especially if the underlying credit agreement involves a publicly traded company, and the provision was inserted when a proxy contest has been threatened or has occurred.

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