Decline of the “Dead Hand” Proxy Put

12/09/2015

Should parties extending credit be allowed to accelerate their debt solely as a result of a change in the majority of the borrower’s Board of Directors? As shareholder activism continues to rise, lender-friendly covenants known as “dead hand” proxy puts in credit agreements and indentures have recently faced increased judicial scrutiny. The flood of litigation has been driven, in part, by the conclusion of the Delaware Court of Chancery in October 2014 that “dead hand” proxy puts are “highly suspect” entrenchment tools employed by lenders and corporate borrowers to discourage shareholder activism. In an effort to avoid costly litigation, lenders and noteholders are rethinking the value, and evaluating the risk, of including “dead hand” proxy put provisions in their debt agreements.

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