Background
MPower Financing, PBC, a Delaware public benefit corporation that finances international students, faced an urgent need for capital in early 2025 to meet a $17 million minimum cash requirement under its debt covenants. After previous attempts to raise equity failed, two of its major lenders and existing stockholders, Tilden Park Capital Management and King Street Capital (the “Funds”), proposed a financing package. At the time, the Funds collectively held nearly $109 million of MPower’s debt and owned 25.5% of its common stock.
The final transaction provided MPower with $20 million in new financing. Critically, it also gave the Funds an option to convert their existing debt into equity at a price of $2.25 per share, a steep discount from the company’s prior valuation. This conversion would increase the Funds’ aggregate ownership from approximately 25% to nearly 85%, massively diluting the company’s other stockholders. In response, the MPower board formed a special committee of three disinterested directors to evaluate the transaction.
The Special Committee retained its own legal and financial advisors and conducted a search for alternative financing deals. Although a group of existing stockholders made a competing offer, the committee’s financial advisor rejected it. Despite objections from stockholders holding over 50% of MPower’s stock, the Special Committee approved the transaction with the Funds, which closed on March 28, 2025. Current and former stockholders sued the Special Committee members for breach of fiduciary duty and the Funds for aiding and abetting.
The Court’s Holding
Vice Chancellor Cook granted the defendants’ motion to dismiss all claims. The court’s decision hinged on a statutory “safe harbor” provision for directors of public benefit corporations found in Section 365(b) of the Delaware General Corporation Law. This provision deems a director’s decision to have satisfied their fiduciary duties if the decision is “informed and disinterested and not such that no person of ordinary, sound judgment would approve.” The court held that the plaintiffs failed to plead sufficient facts to overcome this protection.
The plaintiffs had conceded that the Special Committee members were disinterested. The court found that the committee’s actions—including hiring independent legal and financial advisors and conducting a market check for alternative deals—were sufficient to demonstrate that its decision was “informed.” The plaintiffs did not plead facts suggesting the transaction was so one-sided that no person of ordinary, sound judgment would have approved it, especially given the company’s urgent need for financing.
The opinion also addressed, as a matter of first impression, how the Revlon doctrine—which typically requires directors to secure the best price reasonably available in a change-of-control transaction—applies to public benefit corporations. The court concluded that Revlon’s singular focus on maximizing stockholder price is inconsistent with the statutory duty of PBC directors to balance the financial interests of stockholders with the company’s public mission and the interests of other stakeholders. While the court declined to apply the Revlon standard of conduct, it left open the possibility that a modified form of enhanced scrutiny might apply to PBCs in a sale context. However, because the § 365(b) safe harbor protected the committee’s decision, the court did not need to resolve that question definitively.
Key Takeaways
- Directors of Delaware public benefit corporations are protected by a statutory safe harbor (DGCL § 365(b)) when making decisions that balance stakeholder interests, provided their decision-making process is informed, disinterested, and not irrational.
- The Revlon duty to obtain the highest possible price for stockholders in a corporate sale does not apply as a standard of conduct to public benefit corporations, whose directors must by law balance pecuniary interests with the corporation’s public benefit.
- Plaintiffs challenging a board’s decision at a public benefit corporation face a high bar and must plead specific facts to overcome the presumption that the § 365(b) safe harbor applies; alleging a dilutive outcome, without more, is insufficient.
Why It Matters
This decision provides significant clarity on the fiduciary duties and legal protections for directors of public benefit corporations (PBCs), a growing and important corporate form. By holding that the strict, price-maximization mandate of Revlon does not apply to PBCs, the court affirmed that these entities operate under a different legal standard that grants directors the flexibility to balance profit with purpose. The ruling reinforces the strength of the statutory safe harbor in DGCL § 365(b), offering directors substantial protection from stockholder lawsuits when they follow a careful, disinterested, and informed process.
For investors, entrepreneurs, and legal practitioners in the impact-investing and social-enterprise sectors, this opinion is a landmark. It helps define the rules of the road for high-stakes transactions at PBCs, potentially reducing litigation risk for boards that must navigate financial challenges while staying true to their public mission. The decision underscores that while directors of PBCs are not unaccountable, courts will grant them significant deference in balancing competing interests so long as their process is sound.