United States: Delaware Chancery Court provides roadmap for retroactive validation of shareholder votes

In brief

In December 2022, the Delaware Chancery Court sent shockwaves throughout the SPAC world when it ruled that single class votes on charter amendments were invalid under Delaware law.  This is the process utilized by many, if not most, SPACs seeking approval of their merger with the target company.

In Garfield v. Boxed, Inc.,i the Delaware Court of Chancery held that a stockholder vote was invalid under Section 242 of Delaware General Corporation Law (DGCL) where a special purpose acquisition company (SPAC) had a multi-class stock structure and Class A and Class B stockholders voted together as a single class on charter amendments to increase the number of shares.  Plaintiff, a Class A common stockholder, argued that the vote was invalid because holders of Class A shares had a right to vote on the amendments as a standalone class. The Chancery Court agreed. By invalidating these votes, the Boxed decision cast doubt on the capital structure for dozens of post de-SPAC companies with billions worth of securities. The Chancery Court explained that where the combination closed in reliance on the challenged amendments, the validity of the merger could be attacked.


Boxed resulted in the immediate creation of a new brand of securities claims and a potential tsunami of SPAC litigation. Recognizing the widespread harm this would cause, on February 20, 2023, searching for a way to reconcile belated challenges to the very reverse merger by which hundreds of SPAC targets were taken public and where such companies had long since been operating as public companies, the Chancery Court held that affected companies could retroactively validate these “pooled” stockholder votes under Section 205 of the DGCL. The Court's first written decision regarding Lordstown Motors Corp. illustrates how affected companies may seek retroactive validation of stockholder votes taken in contravention of Section 242.

Accordingly, post-de-SPAC companies should follow the Court’s guidance to seek retroactive validation of pooled shareholder votes under Section 205 to resolve any concerns about their capital structure stemming from the Boxed decision and avoid related securities litigation.

Click here to access full alert.

i Garfield v. Boxed, Inc., No. 2022-0132-MTZ, 2022 WL 17959766 (Del. Ch. Dec. 27, 2022)

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.