Timing is everything—in life and in Delaware.
Delaware Supreme Court decisions issued this year have invoked timing to dismiss stockholder challenges to governance arrangements, with one case finding the dispute unripe and another finding the dispute untimely.
These rulings clarify when stockholder challenges to governance decisions may appropriately be brought.
Too Early
In April, the Delaware Supreme Court, in In re AES Corporation, affirmed the dismissal of two stockholder challenges to advance notice bylaws as unripe.
Advance notice bylaws are the provisions in a corporation’s bylaws that specify timing and informational requirements for shareholders to nominate directors or vote on other matters. They’ve been a hot topic in Delaware over the last few years. Corporations have made the requirements to nominate directors increasingly complex, and a wave of litigation has ensued.
I summarized recent advance notice bylaw litigation in a prior article for Bloomberg Law and concluded that stockholder challenges had been largely unsuccessful. These results may well be a function of selection bias. Most nomination notices are accepted; those that are rejected are more likely to have a serious defect or some unsavory element (such as when a convicted felon was alleged to be behind successive nominations).
Nevertheless, Delaware courts generally enforce clear and unambiguous bylaws and haven’t shown leniency to stockholders who fail to comply with specified requirements.
AES continues the trend of unsuccessful advance notice bylaw challenges. There, the stockholders argued that the bylaws at issue were designed to deter stockholders from nominating directors and had the effect of suppressing activism. The stockholders argued that the boards’ adoption of these bylaws constituted a breach of fiduciary duty.
The problem with the stockholders’ challenge was that they neither intended to nominate directors nor identified anyone who had been deterred from doing so. The court thus affirmed dismissal of the claim as unripe, holding that the controversy was hypothetical and premature for judicial review.
This outcome wasn’t obvious in light of prior Delaware decisions. As the court acknowledged, in other cases, Delaware courts have “credited deterrence as a present harm even when the challenged device has not yet been ‘triggered’ in the ordinary sense.” That has happened in the context of anti-activist poison pills, fee-shifting bylaws, and proxy puts.
But the Delaware Supreme Court treats advance notice bylaws differently. Whereas poison pills cause “immediate dilution,” fee-shifting bylaws create “direct personal liability for attorneys’ fees,” and proxy puts trigger “automatic debt consequences tied to board change,” advance notice bylaws “principally impose[] procedural and disclosure obligations on a would-be nominator.”
Thus, the court held, “advance notice bylaws do not impose the same kind of self-executing, economically coercive consequence that created ripeness” in other cases.
The result in AES also stemmed from the plaintiffs’ decision to disclaim any facial challenge to the bylaws. In a prior advance notice bylaw decision—Kellner v. AIM ImmunoTech, Inc.—the Delaware Supreme Court clarified the two types of bylaw challenges stockholders may bring: facial and as-applied challenges.
Bylaws are facially invalid when they “cannot operate lawfully under any set of circumstances.” They also may be held unenforceable in an as-applied challenge if they’re adopted for the primary purpose of precluding a challenge to the board’s control, or if the advance notice requirements are disproportionate to the threat posed and preclusive.
Facial challenges are ripe upon adoption, but as the AES decision held, as-applied challenges require a stockholder with an actual controversy, not a hypothetical one.
Too Late
Another recent high-profile decision found that a stockholder challenge to a different governance arrangement—a stockholders agreement—was brought too late.
In West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., the Delaware Court of Chancery invalidated certain provisions of the challenged stockholders agreement, finding that they violated the Delaware General Corporation Law by impermissibly delegating the board’s authority over various governance matters to the company’s controlling stockholder. Because the provisions were illegal, they were void.
The Delaware Supreme Court disagreed. In January, it held that the governance arrangements in the stockholders agreement were voidable, not void, because they could have been enacted through other lawful means such as a charter amendment.
As a voidable act, the challenge was subject to equitable defenses, including defenses relating to timeliness. So the court concluded that the challenge—brought nine years after the stockholders agreement was put in place—was time-barred.
Just Right
As AES makes clear, an as-applied challenge must be brought by a stockholder facing a “genuine, extant controversy.” Stockholders may continue to mount challenges to advance notice bylaws when they believe their nomination notices have been wrongfully rejected. AES leaves the door open for a ripe challenge by a stockholder who claims to have been deterred from nominating in the first place, provided it’s brought in a timely manner.
Unlike the governance provisions at issue in Moelis—which could have been lawfully adopted by other means—facially invalid bylaws are likely to be considered void, not voidable.
In Kellner, for example, the Delaware Supreme Court invalidated an advance notice bylaw as being “unintelligible” with “excessively long,” “vague,” and “virtually endless” requirements. Kellner and AES suggest the timing concerns raised by Moelis likely wouldn’t be a barrier to a stockholder challenge to a facially invalid bylaw, even if brought long after adoption.
The Delaware Supreme Court’s recent decisions in AES and Moelis offer important guidance on the timing of stockholder governance challenges. The rulings establish that, when it comes to as-applied bylaw challenges, stockholders must wait until a genuine controversy arises—but can’t wait too long when challenging voidable governance arrangements.
The cases are In re The AES Corp. and Owens Corning, Del., No. 218,2025/257,2025, decided 4/29/26; and Moelis & Co. v. West Palm Beach Firefighters’ Pension Fund, Del., No. 340,2024, decided 1/20/26.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Renee Zaytsev is a partner and co-lead of the securities and shareholder disputes practice at Boies Schiller Flexner.
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