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“Delaware Statutory Trust Act, Limited Liability Company Act, and Delaware Revised Article 9”, Authored by Norman M

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“Delaware Statutory Trust Act, Limited Liability Company Act, and Delaware Revised Article 9”, Authored by Norman M “Delaware Statutory Trust Act, Limited Liability Company Act, and Delaware Revised Article 9”, authored by Norman M. Powell, originally appeared in the December 2004 issue of the Commercial Law Newsletter, a joint newsletter of the Uniform Commercial Code and Commercial Financial Services Committees, American Bar Association Section of Business Law. © American Bar Association 2004 This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. American Bar Association Commercial Law Newsletter Section of Business Law Delaware Statutory Trust Act, Limited Liability Company Act, and Delaware Revised Article 9 By Norman M. Powell Morris, James, Hitchens & Williams LLP Wilmington, Delaware n its most recent legisla- tain information relevant to vide for the manner in which it tive session, the Dela- some securitization transac- may be amended, including by ware General Assembly tions, and attempt to make requiring the approval of a per- Ienacted changes to the Dela- clearer certain requirements son not a party to the governing ware Statutory Trust Act, 12 when trusts or trustees are instrument (e.g., a lender) or DEL. C. § 3801 ET SEQ. (THE “DST debtors, as well as to lessen or the satisfaction of certain con- Act”), the Delaware Limited Li- eliminate the consequences of ditions (e.g., repayment of in- ability Company Act, 6 Del. C. § certain types of confusion as debtedness). 18-101 et seq. (the "DLLC Act"), between a trust debtor and a A new Section 3806(i) and Uniform Commercial Code trustee debtor. was added, specifying that a Revised Article 9 as in effect in This article summarizes governing instrument may pro- Delaware (“Delaware RA-9”). (It these amendments to the DST vide that a beneficial owner also enacted revised Uniform Act (House Bill No. 463, 74 Del shall be subject to specified Commercial Code Articles 1 and Laws 353), the DLLC Act penalties or consequences 7, the former retaining the “old” (House Bill No. 411, as (including forfeiture of benefi- choice of law rule.) The DST Act amended by House Amend- cial interest) if such beneficial amendments (effective August ment No. 1, 74 Del Laws 275), owner fails to perform or com- 1, 2004) focus on maintenance and Delaware RA-9 (Senate Bill ply with terms as required by of separate records for series, No. 326, 74 Del Laws 332). To the governing instrument, or restrictions on amendments to request a copy of any of these upon the happening of speci- governing instruments, provi- bills, send an email to npow- fied events. Section 3810(d) sion in governing instruments [email protected] and in- clarifies that a certificate of for penalties or consequences clude in the “subject” line a ref- trust shall be cancelled upon (including forfeiture of benefi- erence to the bill by number. the dissolution and completion cial interest), merger and con- of winding up of the trust, or solidation, conversion, domesti- DST ACT AMENDMENTS deemed cancelled upon the fil- cation, and transfer or continu- The DST Act was ing of a certificate of merger or ance. The DLLC Act amend- amended by House Bill No. consolidation if the trust is not ments (effective August 1, 463, 74 Del Laws 353, effec- the surviving or resulting entity, 2004) focus on transfer or con- tive August 1, 2004. or upon the filing of a certificate tinuance, maintenance of sepa- of transfer, or upon the filing of rate records for series, conver- Provisions Relating to Govern- a certificate of conversion to a sion, restrictions on amend- ing Instrument, Series, Etc. non-Delaware other business ments to limited liability com- Section 3806(b)(8) now entity. pany agreements, and limits on states explicitly that a governing Section 3804(a) was the expansion or restriction of instrument may provide rights amended to clarify the manner fiduciary and other duties. The to any person, including a per- in which records and assets are Delaware RA-9 amendments son who is not a party to the to be maintained in cases (generally effective January 1, governing instrument (e.g., a where the governing instrument 2005) create a safe harbor col- lender). A new Section 3806(b) creates one or more series of lateral description (for use in (9) was added, specifying that a trustees or beneficial owners. financing statements) for cer- governing instrument may pro- (Continued on page 10) December 2004 Copyright American Bar Association 2004 Page 9 American Bar Association Commercial Law Newsletter Section of Business Law Section 3806(b)(3) was filed in lieu of a certificate of verts to a non-Delaware busi- amended to clarify that a gov- merger or consolidation. ness entity, a certificate of con- erning instrument may contain Section 3821, relating to version to a non-Delaware en- any provision relating to the approval of conversion of a tity must be executed and filed management of the trust and statutory trust, has been com- with the Delaware Secretary of certain other matters including pletely reworked. It sets forth State and must contain speci- conversion, merger, and con- the requirements for a statutory fied statements, including the solidation. trust to convert to an other jurisdiction in which the other business entity, establishing a business entity is organized, Provisions Relating to Merger, hierarchy of authorization re- formed, or created, and agree- Conversion, Etc. quirements. If the governing ment of the trust that it may be Section 3811 requires instrument includes a provision served through the Delaware that a certificate of merger or specifying a manner of authoriz- Secretary of State in any action, consolidation, conversion, ing a conversion, that provision suit or proceeding for enforce- transfer, transfer and continu- is controlling. If it does not, and ment of any of its obligations. ance, domestication, or termi- the governing instrument does When a statutory trust has nation, and amendments to any not prohibit conversion, the been converted to an other of them, if filed by the trust, conversion shall be authorized business entity, the other busi- must be signed by all trustees in the same manner (if any) as ness entity shall, for all pur- or as provided in the governing is specified for authorizing a poses of the laws of the State instrument (subsection (a)(4)). merger or consolidation. If that of Delaware, be deemed to be New text in Section 3812(b) is not specified, and the govern- the same entity as the statutory clarifies that a certificate of ing instrument does not prohibit trust. trust shall be cancelled upon conversion, the conversion the filing of a certificate of shall be authorized by approval Provisions Relating to transfer or a certificate of con- of all beneficial owners and all Domestication of Non-United version to a non-Delaware en- trustees. Thus, this require- States Entities tity. ment of unanimous approval is A new Section 3822 has A new Section 3815(b) the default rule and can be al- been added, dealing with do- (4) was added requir- tered by agreement. Unless mestication of non-United ing that, in the case of otherwise agreed, conversion States entities (generally, enti- a merger in which a does not require a statutory ties other than those formed statutory trust is the trust to wind up its affairs, under the laws of a state). It surviving entity, the cer- pay its liabilities, or dis- generally permits any non- tificate of merger shall tribute its assets. United States entity to become state such amendments, if Rights or securities domesticated as a Delaware any, to the certificate of of, or interests in, statutory trust by complying trust to change its name as the statutory trust with certain requirements in- are desired to be effected. being converted may cluding the filing of a certificate Text was added to Section be exchanged for or of statutory trust domestication 3815(e) providing that a cer- converted into cash, prop- and a certificate of trust. The tificate of merger setting forth erty, rights or securities of, or certificate of statutory trust do- any amendment in accordance interests in, the other business mestication must state, among with new subsection (b)(4) is entity into which the statutory other things, the date on which deemed an amendment to the trust is being converted, or ex- and jurisdiction where the non- certificate of trust, obviating the changed for or converted into United States entity was first need for separate amendment cash, property, rights or securi- formed, incorporated, created, under Section 3810, and pro- ties of, or interests in, any other or otherwise came into being, viding that an agreement of business entity, or may be can- its name immediately prior to merger or consolidation can be celled. If a statutory trust con- (Continued on page 11) Page 10 Copyright American Bar Association 2004 December 2004 American Bar Association Commercial Law Newsletter Section of Business Law filing, the name of the statutory cash, property, rights or securi- fectiveness of a certificate of trust, the future effective date ties of, or interests in, such do- transfer, the statutory trust or time (if any) of the certificate, mestic statutory trust, or may ceases to exist as a Delaware and the jurisdiction that consti- be exchanged for or converted statutory trust. Following the tuted the seat, siege social, or into cash, property, rights or effectiveness of a certificate of principal place of business or securities of, or interests in, an transfer and continuance, the central administration of the other domestic statutory trust statutory trust continues to ex- non-United States entity, or its or other entity, or may be can- ist as a Delaware statutory equivalent.
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