Conflicted Director and Officer Transactions Post-SB 21

First time teaching

In Business Associations today, we took up the issue of interested director transactions—a.k.a. conflicted director transactions or related party transactions. In Delaware, such transactions are governed by Delaware General Corporation Law ss 144. Today, I taught this block of material for the first time since the important amendments to § 144 made by SB 21 last spring.

For an overview of SB 21, see my explainer Delaware Senate Bill 21: What It Does and What Questions Remain Open

Overview of Section 144(a) Safe Harbors

Section 144(a) of the Delaware General Corporation Law (DGCL), as amended by Senate Bill 21 (SB 21) in 2025, provides three alternative “safe harbors” for transactions involving a conflict of interest by a director or officer:

1. Approval by Disinterested Directors: The material facts of the director’s or officer’s interest are disclosed or known to all members of the board (or a committee), and the transaction is authorized in good faith and without gross negligence by a majority of the disinterested directors (or, if a majority of the board is not disinterested, by a committee of at least two disinterested directors);

2. Approval by Disinterested Stockholders: The transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders; or

3. Fairness: The transaction is fair as to the corporation and its stockholders.

If any one of these safe harbors is satisfied, the transaction is insulated from equitable relief or damages based on a claim of breach of fiduciary duty by reason of the director’s or officer’s interest.

A Student Question

At this point, a student asked a logical question; namely, what happens if none of the safe harbors is satisfied?

Read on for the answer.