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Shadow Directors and Controlling Shareholders: Duties and Liability
The meltdown and the consequent disappointments have produced a wave (actual and threatened) of litigation, alleging the VCs, through the board seats of their appointees, were in “control” of failed companies (dot-coms and others), and therefore obligated to exercise “fiduciary” care over the fortunes of minority shareholders. And, the deep-pocketed VCs have, of course, been taking evasive action. Their time-honored gambits are, first, to eschew a board seat and substitute instead “observer” or “visitation” rights – the right to sit in attendance at all board meetings and speak one's piece ' but not vote. Given the muscle the VCs enjoy, by keeping their hand on the money spigot, this usually amounts to the same thing as a board seat. This is a practice known in the UK as “shadow directors.” I am informed by my UK compadres that liability can attach as if the individual VC was, de jure as well as de facto, sitting on the board.
One step further removed is the assertion of rights through negative covenants. This takes advantage of the well-recognized doctrine in US law that a shareholder may behave in any way he or she sees fit in exercising shareholders rights, in contrast to one's obligation as a director to respect and further the interests of all the shareholders.
Up to now the selfish shareholder has not been deemed to have created a cause of action. Nonetheless, as stated above there is a companion doctrine in U.S. law that a “controlling” shareholder has fiduciary duties to the minority; and it has recently been argued, in a case in which I am involved, that the negative covenants in favor of a shareholder, even a minority shareholder, create the necessary quantum of “control” to get the plaintiffs past the preliminary motions stage ' the equivalent of victory in most litigation.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.