Securities Regulation Daily Wrap Up, MERGERS AND ACQUISITIONS—Del. Ch.: Enhanced scrutiny may apply in deals involving public benefit corporations, (Jul 30, 2026)

By Anne Sherry, J.D.

While Revlon does not impose a standard of conduct on PBC directors, its underlying enhanced-scrutiny standard may apply.

In a case of first impression, the Delaware Court of Chancery determined that Revlon does not impose a standard of conduct on public benefit corporation directors, although its underlying standard of review (enhanced scrutiny) may apply. The court did not reach that question because the plaintiffs failed to rebut the statutory safe harbor (Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P., No. 2025-0898-NAC (Del. Ch. July 29, 2026)).

Change of control. The challenged transaction involved a change of control where for $20 million in financing, the public benefit corporation’s two major lenders increased their stock holdings from 25 percent to 85 percent. The transaction was approved by an independent, disinterested special committee advised by independent legal and financial advisors.

Stockholders owning nearly 30 percent of the common stock sued, objecting primarily to the significant dilution of existing stockholders. The lawsuit asserted one claim against the special committee for breach of fiduciary duty and an aiding-and-abetting claim against the lenders.

PBC enhanced scrutiny. This presented a case of first impression as to the fiduciary standard that applies to public benefit corporations, which—unlike traditional corporations—don’t necessarily have to maximize value for stockholders. Under Delaware General Corporation Law Section 365(a), directors of public benefit corporations must balance stockholder pecuniary interests with the interests of other stakeholders.

For transactions involving a change of control of a traditional corporation, the presumptive standard of review is enhanced scrutiny under Revlon and its progeny. The Delaware Supreme Court maintains that “there is only one Revlon duty—to get the best price for the stockholders at a sale of the company.”

The defendants argued that Revlon’s sole focus on stockholder wealth maximization is inconsistent with Section 365(a). To the extent that Revlon imposes a standard of conduct, the chancery court agreed. But construing Revlon as a standard of review, it was possible to apply the doctrine in the PBC context, as the plaintiffs urged.

Safe harbor. The court posited that this “PBC enhanced scrutiny” might examine whether the directors’ balancing of interests under Section 365(a) fell outside the range of reasonableness. However, it did not have to decide, because Section 365(b) provides a statutory safe harbor “if such director’s decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.” The plaintiffs failed to rebut this presumption.

The plaintiffs’ concession that the special committee members were disinterested and independent left only the question whether the committee was “informed.” And in this case, the question of whether enhanced scrutiny or the business judgment rule applied was academic because the plaintiffs did not plead facts supporting a reasonable inference that the committee was not informed under either standard.

The complaint spoke only to the directors’ failure to try to find a better deal, which goes to just one of the three interests PBC directors must balance: the stockholders’ pecuniary interests. The plaintiffs could have sought books and records to test their supposition that no balancing occurred, but they opted not to.

The other prong of Section 365(b), whether the committee’s decision was “such that no person of ordinary, sound judgment would approve,” sounded in waste. The plaintiffs did not and could not assert that the company received nothing from the financing transaction and instead disagreed with the special committee’s process.

Because the plaintiffs failed to rebut the safe harbor, the committee was deemed to have satisfied its fiduciary duties. Even if the court were to conclude otherwise, it would almost certainly conclude that the claim for breach of fiduciary duty against the special committee members must be dismissed under both the Section 144(a)(1) safe harbor and the company’s exculpation provision. The public benefit corporation statute expressly provides that failing to balance cannot constitute bad faith absent a conflict of interest.

The case is No. 2025-0898-NAC.

Judge: Cook, N.

Attorneys: David A. Jenkins (Katzenstein & Jenkins LLP) for Drakes Landing Associates. Sarah R. Martin (Greenberg Traurig, LLP) for Tilden Park Capital Management.

Companies: Tilden Park Capital Management

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