November 09, 2021

Revaluing Assets and Liabilities When Paying Dividends or Repurchasing Shares

Corporate partner Doug Raymond and business litigation partner Todd Schiltz coauthored an article for Directors & Boards titled “Revaluing Assets and Liabilities When Paying Dividends or Repurchasing Shares.” Boards of directors often seek to return cash to stockholders, in the form of either dividends or stock buybacks, and their article discusses new guidance for boards to consider regarding these types of transactions based on recent Delaware cases.

The authors highlight that boards should give careful consideration to these recapitalizations, buybacks and dividends, and how directors should be particularly focused on these transactions because, under the laws of most states, directors can be held personally liable for dividends or share repurchases that strip out too much equity.

The article breaks down In re Chemours Deriv. Litig., where the Delaware Court of Chancery addressed two important issues: what deference, if any, would the court apply to the directors’ calculation of surplus, and what is the effect of the directors’ reliance on experts when calculating surplus.

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