The UCC, Passover and Another Public Company Plans Delaware Exit
In recognition of the beginning of Passover at sunset tomorrow, today’s post reprises this post from 2015:
The Jewish holiday of Passover begins at sundown this evening [In 2025, Passover begins on April 12]. In preparation for Passover, observant Jews must dispose of absolutely all chametz,which is basically any food that is made with grain and water that has been allowed to leaven (rise). One way to dispose of chametz, which is also spelt chometz, is to sell it to a non-Jew and then buy it back after the holiday. Under this option, the parties enter into an actual written contract.
Thus, I began wondering about the secular legal implications of these contracts. I could find only a handful of U.S. cases that even mention chametz, and all of those cases involved prisoner complaints about being fed chametz. Nonetheless, it is possible that disputes could arise. For example, who bears the risk of loss if the chametz is destroyed in a fire or other calamity? What if one party fails to perform?
It seems to me that the sales of chametz are governed by, among other things, Division 2 of the California Commercial Code. Under Section 2102 provides that Division 2 applies to transactions in goods. Section 2105 defines “goods”, with certain exceptions, as all things (including specially manufactured goods) which are movable at the time of identification of the contract for sale. Most items of chametz (bread, beer, cookies, etc.) clearly fit within this definition. See, e.g., Webster v. Blue Ship Tea Room, Inc., 347 Mass. 421,198 N.E.2d 309 (1964) (applying the UCC to fish chowder).
You can watch Israel’s Prime Minister Benjamin Netanyahu sell all of the State of Israel’s chametz here. It is unlikely, however, that the contract included a California choice of law provision.
China Based Company Proposes Reincorporation In Nevada
DExit continued this week with the filing of a preliminary information statement by Baiyu Holdings, Inc., a company based in Shenzhen, Guangdong, China. Baiyu believes that moving to Nevada will reduce the risk of unmeritorious litigation:
The increasing frequency of claims and litigation in Delaware brought by financially-interested law firms against corporations and their directors and officers creates unnecessary distraction and costs for businesses, especially businesses in competitive and innovative industries. The absence of statutory bright-line standards in Delaware for transactions that may involve a controlling stockholder has encouraged law firms to test new theories of liability and broaden the definition of who is in control, what transactions should be deemed conflicted and how strict the standards should be for cleansing such transactions.
State Climate Disclosure Bills – A Growing Trend?
With the uncertainty plaguing the ultimate status of the SEC’s climate disclosure rules on the federal level (we reported on the most recent developments in The SEC Votes to “End its Defense” of Climate Change Rules and SEC Asks Court to Put Climate Change Litigation on Hold), a number of U.S. states have continued to take up the mantle to mandate the disclosure of climate emissions from both public and private enterprises.
California was the first state to pass climate disclosure laws (discussed in previous client alerts – California – First State to Enact Climate Reporting Legislation and California Climate Disclosure Laws – New Developments, Old Timelines) and several states have since proposed similar bills requiring large business entities to disclose their greenhouse gas (GHG) emissions, the highlights of which are summarized below.
However, on April 8, 2025, President Trump issued an Executive Order directing the U.S. Attorney General to identify and stop the enforcement of all state laws, regulations, policies and practices “that are or may be unconstitutional, preempted by Federal law, or otherwise unenforceable,” with a focus on prioritizing any such state laws purporting to address “climate change” or involving “greenhouse gas.”
While it remains unclear whether any of the proposed state bills will pass into law in their current form, or at all, or if enacted, how they will be treated by the current Administration, the trend is noteworthy, and the regulated community should keep informed regarding the status of the proposed state bills.
I. New York
1. Senate Bill 3456 ‑ The Climate Corporate Data Accountability Act[1]
Initially introduced in 2023 and reintroduced in the New York Senate in January 2025 as S3456, the Climate Corporate Data Accountability Act mandates reporting by entities meeting the following criteria:
U.S.‑formed entities;
Doing business in the State of New York and deriving receipts from activity in the State;[2] and
Having revenues in the preceding fiscal year exceeding $1 billion, including revenues received by all of the business entity’s subsidiaries that do business in the State.
Reporting entities would be required to disclose their Scope 1, 2 and 3 GHG emissions annually to an emissions reporting organization. The disclosure timing differs from the California law in that disclosure on a reporting entity’s Scope 1 and 2 emissions would be required a year later, beginning in 2027 (for 2026 data), and on Scope 3 emissions beginning in 2028 (instead of 2027). As in California, GHG emissions would need to be measured and reported using the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard developed by the World Resources Institute and the World Business Council for Sustainable Development (the GHG Protocol).
The New York State Department of Environmental Conservation would be required to adopt implementing regulations by the end of 2026.
The Senate Environmental Conservation Committee recently voted unanimously in favor of the bill which is now pending in the Senate Finance Committee.
2. Senate Bill 3697 – Climate‑Related Financial Risk Reporting[3]
Introduced in January 2025, this bill is modeled on California’s Climate‑Related Financial Risk Reporting law (SB 261). The New York bill would require business entities formed under U.S. law with total annual revenues exceeding $500 million in its prior fiscal year and that do business in New York to prepare a climate‑related financial risk report disclosing, on its website, by January 1, 2028 and biennially thereafter: (i) its climate‑related financial risk, in accordance with the Task Force on Climate‑Related Financial Disclosures framework or an equivalent reporting requirement; and (ii) the measures it adopted to reduce and adapt to the disclosed climate‑related financial risk.
As in California, reports could be consolidated at the parent entity level. Administrative penalties for non‑disclosure or for inadequate disclosure could be imposed up to a cap of $50K per reporting year.
The bill is currently with the Senate Environmental Conservation Committee.
The NY bills overlap with California’s climate disclosure laws (SB 253 and SB 261) and, if adopted as drafted, should not impose material additional obligations on entities already subject to the California laws.
II. New Jersey – Senate Bill 4117[4]
S4117 (the “Climate Corporate Data Accountability Act”) was introduced in 2025. The bill would require businesses operating in New Jersey with an annual revenue exceeding $1 billion to provide a report on their GHG emissions to the Department of Environmental Protection (DEP) and a nonprofit organization selected by the DEP annually, commencing three years after the bill’s enactment; publicly disclose their Scope 1 and Scope 2 GHG emissions commencing four years after the bill’s enactment; and publicly disclose their Scope 3 GHG emissions five years after the bill’s enactment. As in California, GHG emissions would need to be measured and reported using the GHG Protocol.
Importantly, to ease compliance, the bill expressly would allow reporting entities to use reports they provide to the California state government under California’s “Climate Corporate Data Accountability Act” (SB 253) to satisfy the provisions of the New York bill. Business entities that violate the bill’s provisions would be liable for civil administrative penalties of up to $10,000 for the first offense, $20,000 for the second offense and $50,000 for the third and each subsequent offense. A reporting entity could also be liable for civil penalties of up to $10,000 per day of violation.
The bill is currently pending in the Senate Budget and Appropriations Committee.
III. Illinois House Bill 3673[5]
Introduced in the Illinois House in 2025, HB673 (the “Climate Corporate Accountability Act”) would require U.S. business entities doing business in the state of Illinois, with revenues exceeding $1 billion, to annually disclose their Scope 1, 2 and 3 GHG emissions. These public reporting requirements would commence on January 1, 2027 for Scope 1 and 2 emissions and no later than 180 days thereafter for Scope 3 emissions. The Secretary of State would be required to develop and adopt relevant rulemaking before July 1, 2026. As in California, the emissions would need to be calculated using the GHG Protocol.
The bill references the Attorney General’s right to bring a civil action to seek civil penalties but does not contain any specific penalties for non‑compliance.
The bill is currently pending in the House Rules Committee.
IV. Washington – Senate Bill 6092[6]
E2SSB 6092 was introduced in the Washington Senate in 2024. This bill initially required business entities with over $1 billion in annual revenue and doing business in Washington to report Scope 1, 2 and 3 GHG emissions. However, the bill was later substituted to instead direct the Washington Department of Ecology to develop policy recommendations to address climate‑related disclosure requirements in the State.
The Washington Senate passed the bill in February 2024 and the bill is currently with the House.
V. Colorado – House Bill 25‑1119[7]
Introduced in January 2025, HB25‑1119 would require entities doing business in Colorado and having total revenues exceeding $1 billion to disclose annually their Scope 1 and 2 emissions beginning in 2028, and certain Scope 3 emissions by 2029, with a phased‑in approach in subsequent years based on the source of those Scope 3 emissions.[8]
Interestingly, HB25‑1119 includes a freedom of speech exception noting that reporting entities would not be required to disclose any information in violation of their freedom of speech, including any freedom from compelled speech, guaranteed by the First Amendment to the U.S. Constitution or the Colorado State Constitution.
However, this bill has been postponed indefinitely by the House Committee on Energy & Environment.
* * *
The intent of the state bills on climate disclosure is in line with the global trend toward mandated climate reporting, although the specifics of what needs to be disclosed, by whom and when, continue to evolve both domestically and globally. For example, the timing for certain required climate‑related disclosures in the European Union has recently been delayed, as reported in our client alerts (A Step Closer to CSRD’s Non‑EU Group Reporting Standards and Momentum on Voting on the Omnibus Delay and Updating Corporate Sustainability Reporting Requirements), while President Trump’s recent Executive Order calls into question the viability of U.S. state climate disclosure laws.
We will continue to update you on climate disclosure legislative developments on the state, federal and international fronts.
[1] https://legislation.nysenate.gov/pdf/bills/2025/S3456
[2] Within the meaning of Section 209 of the New York Tax Law.
[3] https://legislation.nysenate.gov/pdf/bills/2025/S3697
[4] https://legiscan.com/NJ/text/S4117/2024
[5] https://www.ilga.gov/legislation/104/HB/PDF/10400HB3673lv.pdf
[6] https://lawfilesext.leg.wa.gov/biennium/2023‑24/Pdf/Bills/Senate%20Bills/6092‑S2.E.pdf?q=20250331132001
[7] https://leg.colorado.gov/sites/default/files/documents/2025A/bills/2025a_1119_01.pdf
[8] Scope 3 emissions from purchased goods and services, capital goods and the use of sold products would need to be reported by January 1, 2029; from fuel and energy activities (not already classified as Scope 1 or 2 emissions), waste generated in operations, processing of sold products and end‑of‑life of sold products by January 1, 2030; and upstream and downstream transportation and distribution, business travel, employee commuting, upstream leased assets and franchises by January 1, 2031.
After 12 Enforcement Actions and 9 No-Action Letters, CFTC Staff Effectively Repeals the Pre-Trade Mid-Market Mark Disclosure Requirement
The Commodity Futures Trading Commission’s (CFTC or Commission) Market Participants Division (MPD) issued Letter 25-09, which effectively eliminates the pre-trade mid-market mark (PTMMM) disclosure requirement for uncleared swaps, foreign exchange forwards and foreign exchange swaps.[1]
For the CFTC’s 106 registered swap dealers, MPD staff’s April 4 action is very welcome news. Since the PTMMM disclosure requirement was adopted in February of 2012,[2] the Commission has brought and settled 12 enforcement actions against registered swap dealers, each for their alleged failure to comply with the requirement. That averages to be almost one enforcement action per year. And following the rule’s adoption, MPD staff has issued nine separate no-action letters to provide relief (not including Letter 25-09) from the PTMMM disclosure requirement because either the rule’s stated purpose could be achieved through alternative means, or the disclosure requirement would be too difficult in practice to implement under certain circumstances.[3]
But Why Eliminate the PTMMM Disclosure Requirement?
When the CFTC adopted the PTMMM disclosure requirement back in 2012, the Commission stated that “[t]he spread between the quote in the mid-market mark is relevant to disclosures regarding material incentives and provides the counterparty with pricing information that facilitates negotiations and balances historical information asymmetry regarding swap pricing.”[4] The CFTC noted that dealers historically had an informational advantage over non-dealers. The requirement was essentially intended to resolve this informational imbalance.
Specifically, CFTC Rule 23.431(a)(3)(i) and paragraph (d)(2) together provide that, before a swap is executed, swap dealers must disclose to their non-dealer counterparties the mid-market mark of the swap, which accounts for the swap dealer’s material incentives included in the price of the swap.[5] The CFTC imposed this blanket requirement and then, over the next few years, issued a series of relief from the requirement with respect to certain types of swaps (e.g., swaps that are intended to be cleared; foreign exchange forwards and foreign exchange swaps where each currency of the transaction is one of the Bank of International Settlements 31 currencies and where the transaction has a stated maturity of one year or less). In many of the letters where MPD staff provided relief in response to letters from industry trade groups, staff noted that relief from PTMMM disclosure requirements was warranted in certain circumstances where real-time, tradeable bid and offer swap pricing information is widely available to non-dealers on CFTC registered exchanges.[6]
Following the receipt of a joint letter from three industry trade associations in early 2025, MPD staff reached a different conclusion. That is, Letter 25-09 reflects a complete “about-face” in terms of the Commission’s policy view on this particular requirement.
Specifically, Letter 25-09 expressly states that MPD staff now concludes a “reconsideration of the usefulness and effectiveness of the PTMMM disclosure requirement should be undertaken.” MPD staff found persuasive the trade associations claim that “the PTMMM [Requirement] does not provide any significant informational value to a Swap Entity’s counterparties, and the PTMMM Requirement imposes significant operational burdens on Swap Entities, and at worst, impedes the prompt execution of swap transactions.”
In the letter, MPD staff also note that the US Securities and Exchange Commission (SEC) — which has very similar rules generally to the CFTC with respect to dealers in security-based swaps — declined to adopt a similar PTMMM disclosure requirement notwithstanding the relevant Dodd-Frank Act amendments to the Exchange Act of 1934 mirroring the amendments to the Commodity Exchange Act for business conduct standards. Letter 25-09 will harmonize the two agencies’ business conduct standards for dealers.
The relief in Letter 25-09 is also consistent with Acting Chairman Caroline D. Pham’s commitment to return “back to basics.” During her tenure, the Acting Chairman Pham has focused on, among other things, providing regulatory clarity,[7] reducing regulatory obligations where those obligations do not address their intended purposes, and redirecting the Enforcement Division’s focus on cases where there is actual market abuse and customer harm.
What Does This Mean for Registered Swap Dealers?
The relief in Letter 25-09 represents a significant development for swap dealers, who tend to spend exorbitant amounts of resources to ensure compliance with the PTMMM disclosure requirement. Additionally, swap dealers are frequently asked to demonstrate compliance with PTMMM disclosure requirements as part of their annual examinations with the National Futures Association (NFA).
All of that now goes away.
Another significant development that has not received much attention is the fact that MPD staff’s adoption of Letter 25-09 will likely have a positive impact on any active investigations or enforcement actions where the alleged misconduct is related to compliance with the PTMMM disclosure requirement. Swap dealers that are in the middle of any investigations or enforcement actions should consider engaging with CFTC Division of Enforcement staff to discuss the letter’s impact on their cases.
Does the Letter’s Relief Impact Other Requirements?
The relief in Letter 25-09 will remain in force until the Commission adopts a final rule addressing the PTMMM requirement. It will be interesting to see how quickly the CFTC moves forward with adopting a rule, which officially repeals the requirement.
MPD staff make clear that the Letter’s relief will have no impact on swap dealers’ obligations to provide daily mark disclosures to their non-dealer counterparties pursuant to CFTC Rule 23.431(d). The Letter also provides that it will have no impact on swap reporting requirements under Parts 43 and 45 of the Commission’s regulations.
[1] See CFTC Staff Letter 25-09 (Apr. 4, 2025), available at https://www.cftc.gov/csl/25-09/download.
[2] See Business Conduct Standards for Swap Dealers and Major Swap Participants with Counterparties, 77 Fed. Reg. 9734 (Feb. 17, 2012).
[3] Note that MPD was previously named the Division of Swap Dealer and Intermediary Oversight (DSIO). Most of the no-action letters were issued by staff in DSIO.
[4] Id. at 9766.
[5] See CFTC Rule 23.431(d)(2), which provides that “the mid-market mark of the swap shall not include amounts for profit, credit reserve, hedging, funding, liquidity, or any other costs or adjustments.”
[6] See CFTC Staff Letter 12-58 (Dec. 18, 2012). Letter 12-58 also requires the non-dealer counterparty to agree in advance that the swap dealer need not disclose the PTMMM.
[7] See CFTC Staff Letter 25-10 (Apr. 9, 2025) (Advisory that provides clarity regarding CFTC staff’s view on whether certain foreign exchange instruments are swaps, foreign exchange forwards or foreign exchange swaps).
For Delaware, The Garden Party May Soon Be Ending Despite SB21
In speaking with a reporter earlier this year, I observed that this proxy season will tell whether DExit has legs. While not exactly, a flood, several well-known and lesser-known corporations have recently filed proxy statements proposing to reincorporate from Delaware into Nevada. The most recent filings of which I am aware were made by Madison Square Garden Sports Corp. and Madison Square Garden Entertainment Corp.
Both of these companies misuse the term “redomestication” in their proxy materials. While this may seem as a mere cavil, domestication and conversion are two entirely different processes under both Delaware and Nevada law. See Converting A Corporation Is Not Domestication. Conflating the two statutory processes may result in improper filings and botched reincorporations, as happened in at least one case of which I am aware. This same mistake was also recently made by Sphere Entertainment Co. in its preliminary proxy statement.
Both corporations cite what I believe to be the most fundamental difference between the corporate laws of Delaware and Nevada. Delaware has relied upon its Court of Chancery to make law while Nevada has relied upon its legislature. As a result and because the Court of Chancery has been populated with intelligent judges, Delaware’s corporate law has devolved into a intricate and finely nuanced body of decisional law. According to these companies,
Nevada law does not impose situation-specific conditions, such as requiring that interested transactions be both recommended by a disinterested committee of independent directors and subject to a “majority of the minority” vote, in order to benefit from the protection of the statutory business judgment rule.
This is a point that the plaintiff disputes in its recently filed complaint challenging the recent amendments to Section 144 of the Delaware General Corporation Law, claiming that it is a “false premise” that Nevada law is more predictable. Plumbers & Fitters Local 295 Pension Fund v. Dropbox, Inc., C.A. 2025-0354-KSJM (filed April 8, 2027. The complaint, however, fails to provide much information as to why the premise is false, other than to fault Dropbox’s proxy statement for including only one example of Nevada’s statute focused approach.
Last week, Xoma Royalty Corporation, a biotech royalty aggregator, last week also joined the lengthening list of publicly traded corporations seeking stockholder approval of a reincorporation from Delaware into Nevada despite the enactment of SB21.
Although Delaware historically has pleased most everyone, it now may be learning the lesson that “you can’t please everyone”.
Have Your Say on CSRD: EFRAG Launches Public Call for Input on Revisions to ESRS
The European Financial Reporting Advisory Group (EFRAG) has launched a public call for input (Call for Input) on 9 April 2025, seeking feedback from stakeholders and, in particular, from the first wave of preparers who applied the European Sustainability Reporting Standards (ESRS) in their 2024 Corporate Sustainability Reporting Directive (CSRD) sustainability reports. The ESRS are at the core of the CSRD’s sustainability assessment and reporting requirements.
This follows the publication of the European Commission’s (the Commission) Omnibus proposals aimed to streamline European Union corporate sustainability requirements. To support these aims, on 27 March 2025, EFRAG received a targeted mandate from the Commission to provide proposals to revise and simplify the ESRS by 31 October 2025. The Commission intends to utilize EFRAG’s technical advice to draft a delegated act covering the reduced ESRS reporting obligations under CSRD.
EFRAG sets out that this Call for Input will complement its ongoing interviews and workshops with preparers, auditors, and users of sustainability data, which will also inform their technical advice on the revised ESRS. The request in the Call for Input is on key areas of the Commission’s identified areas for simplification, including:
Least relevant/most challenging: identifying mandatory datapoints that are least relevant or most problematic for general-purpose sustainability per each disclosure requirement in the ESRS, with separate consideration across cross-cutting, environmental, social, and governance matters in the ESRS;
Clarity: how to modify the ESRS provisions that are deemed unclear;
Consistency: how to improve consistency with other EU legislation;
Materiality: how to improve the ESRS provisions on materiality to ensure that undertakings report only material information, do not report unnecessary information and do not dedicate excessive resources to the materiality assessment process;
Simplifying: how to simplify the structure and presentation of the ESRS and any other modifications that could simplify the ESRS without comprising their role in supporting the European Union’s Green Deal; and
Interoperability: how to further enhance interoperability with global sustainability reporting standards.
Input is expected on the basis of an online questionnaire. The outcome of this Call for Input will be anonymized and leveraged only in aggregate form.
An Updated Outlook for Private Equity in 2025
This year is off to a bumpy start in terms of dealmaking. A multitude of factors, including tariff-a-geddon, supply chain disruption, stubbornly high long-term interest rates (not coming down as expected), deregulation (not yet commenced, much less bearing any fruit), and an increasingly volatile stock market, have together summarized in the now ubiquitous term “market uncertainty” and have slowed the pace of dealmaking significantly. The impact of market uncertainty has been especially pronounced in the Private Equity (PE) space. In this context, PitchBook analysts have revised their outlook for the PE landscape for the balance of 2025.
Their new US PE Pulse report highlights the fast evolving picture for PE in 2025 in the face of what they term “meaningful macroeconomic threats.” In just December of 2024, their expectation was for stronger exit opportunities, along with some challenges related to capital deployment as the projection was for valuations to rise. They have now reversed that position, with an expectation of tougher exit conditions, coupled with more attractive capital deployment as sellers become more motivated.
One significant factor at play here is what they call “high-impact policies” from the new administration that stand to create “substantial economic effects.” These are leading to a wave of uncertainty for PE firms, and they must reconsider their strategies as conditions shift and regulatory uncertainty persists.
As of late 2024, their data shows that exits were surging (79% YoY in Q4). However, the introduction of tariffs and the onset of market volatility is no doubt impacting exit planning, particularly for those industries that will be most affected such as manufacturing, industrials, and consumer goods.
In the most recent Deal Flow Predictor from SS&C Intralinks, they also consider the delay in interest rate reductions as a contributing factor that could prolong the stall in M&A activity. Everyone is watching to see what the Fed will do in the face of rising economic pressures. But the report also points to the significant pressure on PE firms to execute deals and the expectation of eventual rate cuts that, when combined, could lead to “pockets of activity in strategic sectors.”
As this time of uncertainty does not seem to be ending any time soon, some exit windows might be closed or suboptimal for the foreseeable future. This is a time when PE firms can pivot to value creation mode, taking a strategic and proactive approach to protecting and growing value for their portfolio companies. This could mean looking at operational improvements or optimization of balance sheets, or even bolt-on acquisitions to buy smaller, synergistic companies at more attractive valuations that will boost value when exit conditions improve.
Even if a full exit is not feasible, there are also partial or structured exits to consider, including dividend recapitalizations, minority sales or spin-offs to continuation funds, or other vehicles. And there is always the option to reposition portfolio companies, whether that means reducing geographic or regulatory risks, or even pivoting toward a sector that is more insulated from volatility. No matter how firms choose to use this time, it is important to be strategic so they are ready when the exit window opens again, as it no doubt will.
We believe there is much reason to be optimistic for the balance of this year, despite the many challenges the private equity world is facing. Pitchbook’s report cites approximately 3,800 US PE-backed companies that have been held between five to 12 years and are waiting for their exit opportunities. And with close to $1 trillion of dry powder sitting on the shelf, PE firms are going to be looking to deploy that capital as conditions make putting that cash to work more and more attractive.
Delaware LLCs – “I See Trouble On the Way”
“I see the bad moon arising, I see trouble on the wayI see earthquakes and lightnin’, I see bad times today”*
Delaware had barely birthed changes to Section 144 of its General Corporation Law when the Plumbers & Fitters Local 295 Pension Fund filed a complaint challenging those changes. The plaintiff seeks a declaration that the amendments to Section 144 are unconstitutional under the Delaware constitution. The named defendants are Dropbox, Inc. and its directors. Dropbox reincorporated from Delaware to Nevada on March 5 of this year, 20 days before Delaware Governor Matt Meyer signed the amendments to Section 144 into law.
According to a recent post by John Jenkins at DealLawyers.com, the plaintiff filed the complaint under seal but the challenge may be premised on the notion that the Delaware General Assembly doesn’t have the authority under Delaware’s constitution to constrain the Chancery Court’s equitable jurisdiction to less than what it was in 1792. If that is the case, then according to John “other significant statutory provision of Delaware law may be at risk”. In particular, he notes “the ability of LLCs to avoid judicial review of provisions in their operating agreements purporting to waive fiduciary duties also may run afoul of Delaware’s constitution”.
_____________________*John Fogerty, Bad Moon Rising.
Significantly Tailored Back, CTA Now Only Requires BOI Reporting For “Foreign Reporting Companies” and Non-US Persons
Introduction
The Financial Crimes Enforcement Network (FinCEN) adopted an interim final rule on March 26, 2025, to the Corporate Transparency Act (CTA) significantly narrowing reporting obligations. These changes, effective immediately (with a comment period that ends May 27, 2025), limit obligations to “foreign reporting companies” and exempt “foreign reporting companies” from reporting beneficial ownership interests (BOI) of US persons. Though not yet the final rule, we don’t anticipate significant changes in the final rule to be published after the comment period. This summary outlines the key modifications, their implications for US and foreign businesses, and the anticipated future developments.
Key Changes to the Corporate Transparency Act
Exemption for Domestic Reporting CompaniesThe most notable change introduced by the interim final rule is the exemption of “domestic reporting companies” from the BOI reporting requirements. Previously, the CTA mandated that both domestic and foreign entities report their beneficial ownership information to FinCEN unless the entity qualified for an exception. However, under the new rule, entities formed in the United States, including trusts, corporations and limited liability companies (LLCs), are no longer required to file, update or correct BOI reports.
Exemption for US PersonsIn addition to exempting domestic companies, the interim final rule also exempts US persons from reporting their beneficial ownership information, even if they are beneficial owners of foreign entities doing business in the US. Consequently, foreign reporting companies are not required to report the BOI of their US owners.
Continued Reporting Requirements for Foreign CompaniesWhile domestic entities and US persons are exempt, foreign reporting companies must continue to comply with BOI reporting requirements, albeit with certain modifications. These companies are required to report BOI only for non-US persons who are beneficial owners. Foreign companies are required to file BOI reports within 30 days of the publication of this final rule or 30 days after their registration to do business in the United States. The rule also introduces exemptions for foreign pooled investment vehicles for those in which a US person exercises substantial control over the entity.
Future DevelopmentsFinCEN is accepting public comments on the interim final rule for 60 days ending on May 27, 2025, and intends to issue a final rule later this year. We anticipate that under the current Administration and based upon the current agency’s composition and considerations, that any changes will largely center on foreign entity reporting and non-US citizen requirements for any additional adjustments in the final rule.
In conclusion, the recent changes to the CTA represent a significant shift in US financial regulations, reflecting a reassessment of regulatory priorities and a focus on reducing burdens on domestic businesses. As FinCEN continues to solicit comments and refine the rule, businesses should remain vigilant and assess their compliance obligations, particularly if operating internationally.
We know that the final rule may have additional nuances included during the comment period, but we don’t expect significant deviations from the interim rule and obligations for domestic companies.
Additional Authors: Amy McDaniel Williams and Conor Shary
CTA Interim Final Rule Eliminates Requirements for U.S. Companies and U.S. Individuals to File Beneficial Ownership Reports
On March 26, 2025, the Financial Crimes Enforcement Network (FinCEN), in an action that was promised earlier in March, issued an interim final rule (the “Interim Rule”) that removes all requirements for U.S. companies and U.S. individuals to report beneficial ownership information (BOI) under the Corporate Transparency Act (CTA).
Specifically, the Interim Rule eliminates all BOI reporting requirements under the CTA for:
all entities that are formed in the United States, and
U.S. individuals who are beneficial owners of any entity, including those entities that were formed under the laws of a foreign country.
In its press release announcing the Interim Rule, FinCEN explains that the Interim Rule narrows the definition of a “reporting company” to include only those entities that are formed under the laws of a foreign country and have registered to do business in any U.S. state or Tribal jurisdiction (i.e., entities that were previously defined under the CTA as “foreign reporting companies”).
Those entities that were previously defined under the CTA as “domestic reporting companies” are now expressly exempt from BOI reporting requirements under the Interim Rule.
Foreign companies that meet the new definition of a “reporting company” under the CTA are required to report their BOI to FinCEN unless one or more of the existing reporting exemptions applies to them. Additionally, any reporting company that is required to make a filing under the CTA is no longer required to report any U.S. persons as beneficial owners, and such U.S. persons are not required to report BOI with respect to any such company.
FinCEN further announced that the new BOI filing deadline for any reporting companies established before March 26, 2025, will be April 25, 2025. Reporting companies that register to do business in the United States on or after March 26, 2025, must file an initial BOI report no later than 30 calendar days after receiving notice from the secretary of state (or similar office) that the company’s registration to do business is effective.
FinCEN has also published questions and answers (Q&As) to provide additional explanatory information on BOI reporting in light of the Interim Rule. Among the information included in the Q&As is that FinCEN is accepting comments on this Interim Rule until May 27, 2025, and that it will finalize the Interim Rule later this year.
We will continue to monitor additional developments regarding the CTA, including any changes that may arise during the comment period before the Interim Rule is finalized.
Delaware Adopts Significant DGCL Amendments Related to Control Person Transactions and Stockholder Books and Records Requests
On March 25, 2025, the Delaware governor signed into law amendments to the Delaware General Corporation Law (DGCL), which went into effect upon the governor’s signing. The below overview highlights the most significant changes to these statutes.
Safe Harbors for Control Person Transactions Have Been Expanded, Are Easier to Satisfy, and Limit Liability (Section 144)
Director and Officer Conflicting Interest Transactions (Section 144(a))
Prior to the amendments, the DGCL provided a safe harbor for director and officer conflicting interest transactions, which generally provided that such transactions would not be void or voidable if certain cleansing procedures in the DGCL were followed or the transaction was fair as to the corporation and its stockholders. However, under the prior law, such transactions were still subject to litigation for breach of fiduciary duties, even if the cleansing procedures were followed.
The amendments expand the safe harbor by precluding equitable relief and monetary liability altogether for director and officer conflicting interest transactions if the cleansing procedures are followed or the transaction is shown to be fair as to the corporation and its stockholders. Additionally, the amendments lowered the voting standard for conflicting interest transactions that are submitted to disinterested stockholders for approval to a majority of votes cast standard (from a majority outstanding standard).
Now, conflicting interest transactions between a corporation and one or more of its directors or officers may not be the subject of equitable relief, or give rise to damages liability, against a director or officer of the corporation if the transaction meets either of the following criteria:
It is approved by an informed majority of the disinterested directors[1] then serving on the board or a board committee, provided that if a majority of the directors are not disinterested with respect to the transaction, such transaction shall be approved or recommended for approval by a board committee that consists of two or more disinterested directors with respect to the transaction.
It is approved or ratified by the vote of an informed majority of votes cast by disinterested stockholders.[2]
If neither of these conditions is satisfied, the transaction must be fair as to the corporation and its stockholders for the safe harbor to apply.
Presumption of Disinterest for Directors (Section 144(c))
Prior to the amendments, the DGCL did not expressly define or address what constituted a disinterested director. The Delaware cases that have addressed the issue generally have viewed the satisfaction of independence requirements under applicable stock exchange rules (for public companies) as relevant but not dispositive under Delaware law.
The amendments now establish a presumption that a director of a public company is a disinterested director with respect to transactions to which such director is not a party if the board has determined that such director satisfies the applicable criteria for director independence under the applicable national securities exchange’s rules (including any applicable criteria regarding independence from the controlling stockholders or control group). This presumption may only be rebutted by substantial and particularized facts showing that a director has a material interest[3] in the act or transaction or a material relationship[4] with a party who has a material interest in the act or transaction. This is similar to the independence standard adopted in the Model Business Corporation Act.
Further, the amendments clarify that the mere fact that a director was designated, nominated, or voted for in the election of such director by any person with a material interest in a transaction shall not, of itself, be evidence that a director is not a disinterested director with respect to a transaction to which such director is not a party. This does not represent a major departure from the case law on this issue in Delaware.
Controlling Stockholder Transactions (Sections 144(b)-(c), (e))
Prior to the amendments, the DGCL did not expressly address controlling stockholder transactions. However, Delaware case law generally provided that controlling stockholder transactions, including going private transactions, would be reviewed by a court under the entire fairness standard of review, with the burden to prove entire fairness (as to price and as to process) on the controlling stockholder unless certain cleansing procedures were used to approve the transaction, commonly referred to as the “MFW framework.” If the MFW framework was followed, any claim against the control persons and/or the other directors would be dismissed under the deferential business judgment standard of review unless a plaintiff could show that no rational person could have believed the transaction was favorable to the minority stockholders.
The MFW framework generally provided that a controlling stockholder transaction would be subject to the business judgment standard of review only if a completed transaction was conditioned, ab initio, on approval by a fully informed and uncoerced vote of both (1) an independent, fully functioning board committee of independent directors (i.e., the committee (a) is empowered to freely select its own advisors and reject the transaction and (b) meets its fiduciary duty of care in negotiating a fair price) and (2) a majority of the outstanding voting shares held by disinterested stockholders (i.e., the “majority of the minority” vote).
The amendments add a safe harbor for controlling stockholder[5] transactions[6] and, similar to the expanded safe harbor for director or officer conflicting interest transactions, provide that a controlling stockholder transaction (other than a going private transaction) may not be the subject of equitable relief or give rise to an award of damages against a director, officer, or controlling stockholder if such transaction meets either of the following criteria:
It is approved (or recommended for approval) by an informed majority of the disinterested directors then serving on a board committee (to which the board has expressly delegated the authority to negotiate and to reject such transaction), provided that such committee consists of two or more disinterested directors with respect to the transaction.
It is conditioned, at the time it is submitted to stockholders for approval or ratification, on the approval of or ratification by an informed majority of votes cast by disinterested stockholders, and such transaction is approved or ratified by such vote.
Like director or officer conflicting interest transactions, if neither of these conditions is satisfied, the controlling stockholder transaction must be fair as to the corporation and its stockholders for the safe harbor to apply.
For controlling stockholder transactions that constitute going private transactions,[7] the expanded safe harbor protects the transaction against equitable relief and directors and officers against damages liability if such transaction meets both of the following criteria:
It is approved (or recommended for approval) by an informed majority of the disinterested directors then serving on a board committee (to which the board has expressly delegated the authority to negotiate and to reject such transaction), provided that such committee consists of two or more disinterested directors with respect to the transaction.
It is conditioned, at the time it is submitted to stockholders for approval or ratification, on the approval of or ratification by an informed majority of votes cast by disinterested stockholders, and such transaction is approved or ratified by such vote.
If both of these conditions are not satisfied, the going private transaction must be fair as to the corporation and its stockholders for the safe harbor to apply.
Limitation of Controlling Stockholder Fiduciary Duties (Section 144(c))
Prior to the amendments, a recent Delaware Court of Chancery opinion provided that controlling stockholders owe the fiduciary duty of care to the corporation and its stockholders in certain scenarios.
The amendments now eliminate the monetary liability of a controlling stockholder (including members of a control group) to the corporation or its stockholders for breach of fiduciary duty, except in the following instances:
A breach of the duty of loyalty to the corporation or other stockholders
Acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law
Any transaction from which the controlling stockholder derived an improper personal benefit
Effect on Stockholder Litigation
There is considerable debate about whether these changes will have a material effect on the amount of litigation filed in Delaware related to controlling stockholder transactions. The amendments do overturn some key court precedents related to director independence and the cleansing procedures required in a controlling stockholder transaction for a board to enjoy the presumption of the business judgment rule. How that will affect stockholder plaintiffs’ ability to bring successful derivative litigation challenging those transactions is unclear at this point.
The independence presumption, while useful for directors’ defendants in a lawsuit, may not prove to be much of a departure from prior law because directors have long enjoyed a similar presumption of independence. The legislation does not affect the requirement that directors act in good faith and without gross negligence in approving these transactions. Equally, while the safe harbors in controlling stockholder transactions do take down barriers for cleansing the transaction, it is not yet clear how the removal of those barriers will curtail litigation challenging controlling stockholder transactions.
New Limitations on Stockholder Books and Record Requests (Section 220)
The DGCL provides a statutory right for stockholders to request and inspect a corporation’s books and records for any proper purpose. Prior to the amendments, the DGCL did not define “books and records” and defined “proper purpose” broadly to include a purpose reasonably related to such person’s interest as a stockholder. Delaware courts have interpreted that language broadly, recognizing a long list of proper purposes. Once a proper purpose was established, Delaware case law generally provided that stockholders were entitled to inspect any books and records that were deemed necessary and essential to that proper purpose, which similarly included a long list of materials well beyond the historical understanding of what constituted a corporation’s books and records. Recent decisions in Delaware courts had continued to expand that access. The new amendments overturn many of those recent precedents and restrict the types of records a stockholder may inspect, bringing Delaware’s restrictions closer to, though they’re still not nearly as strict as, the restrictions on stockholder access set forth in the Model Business Corporation Act, which has been adopted by a majority of states in the United States.
The amendments now require that (1) books and records requests or inspections be conducted in good faith, (2) such demands describe with reasonable particularity a purpose reasonably related to such stockholder’s interest as a stockholder for the inspection of the books and records so demanded, and (3) the books and records sought be specifically related to the stockholder’s purpose.
Additionally, the amendments define “books and records” as a specific list of materials that include the following:
Organizational documents (including copies of any agreements or other instruments incorporated by reference therein)
Minutes of all meetings of stockholders, signed written consents evidencing action taken by stockholders without a meeting, and all communications in writing or by electronic means to stockholders, in each case from the three years preceding the date of the demand
Minutes of any board or committee meeting, records of any action of the board or any committee, and materials provided to the board or any committee in connection with actions taken by the board or any committee
Annual financial statements of the corporation for the three years preceding the date of the demand
Certain corporate contracts with stockholders
Director and officer independence questionnaires
Stockholders requesting materials beyond those listed above must show a compelling need for those materials and provide clear and convincing evidence that the materials are necessary and essential to their proper purpose.
The amendments also authorize corporations to impose reasonable restrictions on the confidentiality, use, or distribution of books and records, and may also require, as a condition to producing such materials, that the stockholder agree to incorporate information from the books and records into any complaint filed by or at the direction of the stockholder. The amendments also expressly authorize corporations to redact portions of the books and records that are not related to the stockholder’s proper purpose.
[1] The amendments define “disinterested director” as a director who is not a party to the act or transaction and does not have a material interest in the act or transaction or a material relationship with a person that has a material interest in the act or transaction.
[2] The amendments define “disinterested stockholder” as any stockholder that does not have a material interest in the act or transaction at issue or, if applicable, a material relationship with the controlling stockholder or other member of the control group, or any other person that has a material interest in the act or transaction.
[3] The amendments define “material interest” as an actual or potential benefit, including the avoidance of a detriment, other than one that would devolve on the corporation or the stockholders generally, that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue and (ii) in the case of a stockholder or any other person (other than a director), would be material to such stockholder or such other person.
[4] The amendments define “material relationship” as a familial, financial, professional, employment, or other relationship that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue and (ii) in the case of a stockholder, would be material to such stockholder.
[5] The amendments define “controlling stockholder” as any person that, together with such person’s affiliates and associates, (i) owns or controls a majority in voting power of the corporation’s outstanding stock entitled to vote in the election of directors; (ii) has the right to cause the election of a majority of the board selected at such person’s discretion (by heads or by voting power); or (iii) has the power (a) functionally equivalent to that of a stockholder that owns or controls a majority in voting power by virtue of ownership or control of at least one-third in voting power of the outstanding stock entitled to vote in the election of directors and (b) to exercise managerial authority over the corporation’s business and affairs.
[6] The amendments define “controlling stockholder transaction” as an act or transaction between the corporation or one or more of its subsidiaries, on the one hand, and a controlling stockholder or a control group, on the other hand, or an act or transaction from which a controlling stockholder or a control group receives a financial or other benefit not shared with the corporation’s stockholders generally.
[7] The amendments define “going private transaction” as (a) a Rule 13e-3 transaction (as defined in 17 CFR § 240.13e-3(a)(3) or any successor statute) for a corporation with a class of equity securities subject to Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, or listed on a national securities exchange, and (b) for private corporations, any controlling stockholder transaction, including a merger, recapitalization, share purchase, consolidation, amendment to the certificate of incorporation, tender or exchange offer, conversion, transfer, domestication, or continuance, pursuant to which all or substantially all of the shares of the corporation’s capital stock held by the disinterested stockholders (but not those of the controlling stockholder or control group) are canceled, converted, purchased, or otherwise acquired or cease to be outstanding.
The End of the Corporate Transparency Act Regime for Domestic Companies
On March 21, 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that exempts all domestic companies and persons from all Corporate Transparency Act (CTA) requirements. The only entities remaining in scope are ones that were formed under the laws of a foreign jurisdiction and subsequently registered to do business in a U.S. jurisdiction. Even for these foreign entities, any beneficial owners that are U.S. persons are exempt from all beneficial ownership reporting.
FinCEN’s interim final rule wraps a tumultuous year for the CTA. After a series of federal district court injunctions and stays, FinCEN had initially announced CTA reporting requirements would move forward in full. Then, on March 2, 2025, the Treasury Department, of which FinCEN is a part, announced it would not enforce any CTA requirements against U.S. reporting companies or citizens. The March 2 announcement left many U.S. companies in limbo, because the Treasury Department’s announcement concerned only enforcement, and did not actually lift legal requirements. The distinction between non-enforcement and non-compliance can be important, especially when a company makes representations that they are in compliance with legal requirements. The March 21 interim final rule alleviates these concerns as it lifts the legal compliance requirements for all domestic companies.
Foreign reporting companies have until April 20, 2025 to file beneficial ownership information with FinCEN. Foreign entities that register in a U.S. jurisdiction for the first time after March 31 have 30 days from the date of registration to file an initial beneficial ownership information report.
What is next for beneficial ownership reporting? As far as the CTA goes, FinCEN is accepting comments on the interim final rule and plans to issue a final rule later this year. It is possible we see further changes to the reporting framework, either through the comment process or through additional challenges in the courts. Beyond the CTA, several states are at various stages of implementing their own beneficial ownership reporting regimes. For example, the New York legislature has passed the New York LLC Transparency Act, which largely mirrors the original CTA reporting regime, although it applies only to LLCs. It is schedule to take effect on January 1, 2026. Other states are actively considering beneficial ownership reporting requirements, including Massachusetts, Maryland and California, and it is possible we see further state level regimes ramp up now that the federal rules have been heavily curtailed.
Analysing the Case of Krishna Holdco Ltd v Gowrie Holdings Ltd: Insights into Litigation Privilege Executive Summary
Executive Summary
In a recent judgment, the High Court in Krishna Holdco Ltd v Gowrie Holdings Ltd [2025] EWHC 341 (Ch) has found that litigation privilege did apply to a valuation report prepared for the potential sale of a subsidiary company because that sale was driven by litigation – namely a dispute between two shareholders. The court’s decision underscores the intricacies associated with determining the dominant purpose of a document for the purposes of a claim to litigation privilege, and advocates for an approach which considers the wider context in which a document has been created.
Background
The dispute between Krishna Holdco Limited (Krishna) and Gowrie Holdings Limited (GHL) centers around unfair prejudice proceedings, with Krishna having previously secured a judgment requiring GHL to purchase Krishna’s shares in their jointly owned company, LBNS. The case involves multiple parties, including individual respondents and several corporate entities, with the litigation primarily focusing on the valuation of Krishna’s shares and the associated disclosure of documents.
The conflict goes back to early 2019, when tensions arose between Krishna and GHL over the management and financial stability of LBNS. A critical issue emerged regarding the potential withdrawal of banking facilities by HSBC, allegedly due to Krishna’s refusal to provide certain “Know Your Client” information. In response, GHL considered purchasing LBNS’s trading subsidiaries, GLL and LL, to mitigate the risk posed by the banking issues. This led to the creation of valuation reports concerning GLL and LL by PwC, over which a claim to litigation privilege was subsequently made.[1]
Court Decision
In determining whether the PwC valuation reports were subject to litigation privilege, emphasis was placed on the dominant purpose behind the creation of these documents.
In determining the purpose, the Court considered the context in which the documents were created, including the ongoing litigation and the strategic response to the potential withdrawal of banking facilities. The Court found that the valuation work was not merely a commercial transaction but a subset of a defense strategy in the broader dispute. This approach aligns with recent authority, such as the Director of the Serious Fraud Office v Eurasian Resources Corporation [2017, EWHC 1017 (QB)], where the court emphasized the importance of understanding the factual and commercial context when determining the dominant purpose of document creation.
Accordingly, the court concluded that the reports were produced for privileged purposes, as they were created as part of a broader strategy to address the ongoing dispute between Krishna and GHL.
Implications
In comparison to other recent cases, such as the Eurasian Resources case, the Krishna decision underscores a consistent judicial approach to evaluating the dominant purpose of documents for the purposes of litigation privilege. Both cases illustrate the willingness of the Courts to look beyond the surface of transactions and consider the underlying motivations and strategic considerations behind them.
Accordingly, this decision supports an approach of taking a broader view as to the purpose of a document by taking into account the wider context in which the document was created. As a result, what on the face might appear to be a separate purpose for creating a document may in fact be part of a broader and overall litigation purpose, in which case the “dominant purpose” test for litigation privilege may well be satisfied.
In this respect, the decision also serves as a reminder of the importance of maintaining clear and comprehensive records of the intentions behind document creation, as these records can be pivotal in asserting privilege.
[1] A claim was also made that the reports were subject to “without prejudice” privilege.