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Amendments to the Delaware Statutory Trust Act Enacted

June 28, 2012

The Delaware General Assembly has recently enacted legislation amending the Delaware Statutory Trust Act (the Act). These amendments (the Amendments), which are contained in Senate Bill No. 218 and become effective on August 1, 2012, reflect Delaware’s continuing commitment to maintaining a statute governing Delaware statutory trusts that effectively serves the needs of the national and international business communities. The following is a brief summary of the more significant Amendments that affect Delaware statutory trusts.

Governing Instruments Not Subject to Statute of Frauds
The Act currently states that beneficial owners or trustees of a Delaware statutory trust are bound by its governing instrument whether or not such parties sign the governing instrument. However, in Olson v. Halvorsen, C.A. No. 1884 (Del. Supr. Dec. 15, 2009), the Delaware Supreme Court held that Delaware limited liability company agreements were subject to the statute of frauds notwithstanding similar language in the Delaware Limited Liability Company Act—a decision later overturned by statutory amendment. The Amendments adopt a rule different from the holding in Olson and confirm that, although governing instruments of Delaware statutory trusts must be in writing, they are not subject to any statute of frauds.

Powers of Attorney/Irrevocability
The Amendments confirm the broad power of Delaware statutory trusts to grant, hold or exercise a power of attorney. The Amendments also provide guidance on when a power of attorney with respect to matters relating to the organization, internal affairs or termination of a Delaware statutory trust are irrevocable by clarifying that, for purposes of the laws of the State of Delaware, such power of attorney shall be irrevocable when it states that it is irrevocable and is coupled with an interest sufficient in law to support an irrevocable power. The Amendments also clarify when a power of attorney will be deemed coupled with an interest sufficient to support an irrevocable power and the effects of such irrevocability.

Amendment Provisions in Governing Instruments
The Act currently states that the governing instrument of a Delaware statutory trust may provide for the manner in which it may be amended and, to the extent it so provides, may only be amended in that manner or as otherwise permitted by law. The Amendments confirm that if the governing instrument does not provide for the manner in which it may be amended, the governing instrument may be amended with the approval of all beneficial owners and trustees or as otherwise permitted by law.

The Act does not currently address whether a supermajority amendment provision in a governing instrument applies to the default voting provisions of the Act. In In re LJM2 Co-Investment, L.P. Limited Partners Litigation, 866 A.2d 762 (Del. Ch. 2004), the Delaware Court of Chancery considered a Delaware limited partnership agreement amendment section prohibiting amendments to any provision of the agreement that affected the vote required in such provision unless the proposed amendment was approved by at least the vote originally required in such provision. The Court of Chancery held that the foregoing amendment section applied to amendments to the default voting provisions of the Delaware Revised Uniform Limited Partnership Act that were engrafted into the agreement in the absence of any specific contractual provision to the contrary.

The Amendments define an amendment provision of the type addressed in LJM2 as a “supermajority amendment provision,” which means “any amendment provision set forth in a governing instrument requiring that an amendment to a provision of the governing instrument be adopted by no less that the vote or consent required to take action under such later provision.” The Amendments also adopt a rule different from the approach articulated in LJM2 by providing that unless otherwise provided in the governing instrument, a supermajority amendment provision applies only to voting provisions that are expressly included in the governing instrument. Therefore, unless otherwise provided in the governing instrument, a supermajority amendment provision does not apply to the default voting provisions of the Act.

Correction of Certificates of Cancellation
The Act currently permits the filing of a certificate of correction when any certificate filed under the Act contains an inaccurate record of the action therein referred to or was defectively or erroneously executed. A certificate of cancellation terminates the existence of a Delaware statutory trust. The Amendments confirm that a certificate of correction may be filed to correct a certificate of cancellation that has been filed prior to the dissolution or the completion of winding up of a Delaware statutory trust, thereby negating the termination of such Delaware statutory trust.

Final Settlement of a Statutory Trust’s Business
The Amendments also provide a method for any creditor, beneficial owner or trustee of a cancelled (i.e., terminated) Delaware statutory trust to apply to the Delaware Court of Chancery for appointment of a trustee or receiver for such cancelled trust to take charge of such cancelled trust’s property, to prosecute or defend all suits, and to do all other acts on behalf of such cancelled trust necessary for the final settlement of its business.

Application of Delaware Law
The Amendments confirm that all provisions of a governing instrument of a Delaware statutory trust providing for the application of Delaware law shall be governed by and construed under the laws of the State of Delaware. The foregoing confirmation is significant for governing instruments that contain contractual provisions, such as asset transfer provisions, that are not matters relating to the organization, internal affairs or termination of a Delaware statutory trust.
 

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