Court of Chancery Emphasizes the Importance of Reasonable Advance Notice Bylaws Requirements

On August 14, 2019, in Bay Capital Finance, LLC v. Barnes and Noble Education Inc., the Delaware Court of Chancery upheld the validity of an advance notice bylaw provision, and thereby precluded an activist from nominating a slate of directors based on the activist’s failure to comply with the plain terms of the bylaw, which required the activist to be a stockholder of record in order to submit a notice of nomination. The court held that, because the activist owned shares only in “street name” on the advance notice deadline, its notice was defective and not timely and therefore could be disregarded by the company. While this case is consistent with Delaware case law upholding the validity of reasonable advance notice bylaws, another decision by the Delaware Court of Chancery emphasizes that such bylaws will not be enforced if they “unduly restrict the stockholder franchise or are applied inequitably.” In that case, titled Saba Capital v. BlackRock Credit Allocation Income Trust, the court interpreted an advance notice bylaw to prevent a company from being able to disqualify an activist’s board slate through the use of an onerous, overbroad questionnaire with an unreasonable deadline (i.e., a 47-page, 100-question supplemental questionnaire that was due in five business days). The full text of the *Bay Capital *opinion is available here, and the full text of the *Saba *opinion is available here.