SEC Staff Issues New Universal Proxy Guidance – On the Heels of a Court of Chancery Ruling on One of the First Attempted Proxy Contests under the New SEC Universal Proxy Rules

Providing useful takeaways on drafting advance notice bylaws, excluding dissident nominations for failures to comply with these provisions and how these actions may be reviewed by the courts

Compliance and Disclosure Interpretations

Last week, the Staff of the SEC’s Division of Corporation Finance issued three new Compliance and Disclosure Interpretations (“CDIs”) concerning the universal proxy rules (i.e., Exchange Act Rule 14a-19).[1] Specifically, Question 139.04 confirms that a company can omit a dissident shareholder’s director nominees from its proxy card if the company determines, in accordance with state or foreign law, that the dissident failed to comply with the company’s advance notice bylaw requirements. Additionally, Question 139.05 provides that if a company excludes a dissident’s nominees after determining that the dissident failed to comply with its advance notice bylaw provisions, and the dissident then initiates litigation challenging this determination, the company is required to disclose in its proxy statement: its determination that the dissident’s director nominations are invalid; a brief description of the basis for that determination; the fact that the dissident initiated litigation challenging the determination; and the potential implications if the dissident shareholder’s nominations are ultimately deemed to be valid. Further, if a company furnishes proxy cards that do not include the dissident’s director nominees and a court subsequently determines that the dissident’s candidates are duly nominated, the company must then furnish universal proxy cards with the dissident shareholder’s candidates, discard any previously-furnished cards and ensure that shareholders are provided sufficient time prior to the shareholders meeting to receive and cast their votes on the universal proxy card.[2]

Delaware Court of Chancery ruling — Jorgl v. AIM ImmunoTech Inc.

The CDIs follow a Delaware Court of Chancery ruling — Jorgl v. AIM ImmunoTech Inc., C.A. No. 2022-0669-LWW (Del. Ch. Oct. 28, 2022) – on one of the first proxy contests subject to the SEC’s new universal proxy rules, in which AIM ImmunoTech Inc., a Delaware corporation (“AIM ImmunoTech”), mounted a successful defense against certain dissident shareholders and other members of an activist group that sought to take control of AIM ImmunoTech’s board of directors (the “AIM Board”).

After determining that the dissident’s director nominations notice (the “Notice”) failed to disclose members of its activist group and arrangements and understandings involving undisclosed group members, as required by the company’s advanced notice bylaws, the AIM Board rejected the dissident’s slate and did not include its nominees on AIM ImmunoTech’s proxy card sent to its stockholders in connection with the 2022 Annual Meeting. The dissident responded by bringing suit in the Delaware Court of Chancery (the “Court”) seeking a preliminary injunction requiring the AIM Board to accept the stockholder’s nominations and include its nominees on a universal proxy card to be sent to AIM ImmunoTech’s stockholders in connection with the 2022 Annual Meeting.

On October 28, 2022, Vice Chancellor Will denied the dissident stockholder’s motion for injunctive relief, finding that the dissident stockholder failed to show its Notice complied with the “unambiguous” terms of AIM ImmunoTech’s advance notice bylaws (even though the stockholder dissident purportedly complied with the minimal procedural requirements of Rule 14a-19).

Enhanced Scrutiny guides review of Board’s enforcement of an advance notice bylaw

The Court noted that “[c]lear and unambiguous advance notice bylaw conditions act, in some respects as conditions precedent to companies being contractually obligated to take certain actions;” however, the failure to comply with the unambiguous requirements of the bylaws is not the end of the inquiry as the Board’s “technical entitlement to reject the Notice does not mean that equity will allow [its actions] to stand.” Rather, the Court held that some form of enhanced scrutiny must be applied to assess whether directors acted in compliance with their fiduciary duties in applying an advance notice bylaw – the directors must “identify the proper corporate objectives served by their actions” and “justify their actions as reasonable in relation to those objectives.” The Court held that the AIM Board’s actions in rejecting a dissident’s Notice will be validated where such actions function as a “reasonable limitation on the rights of stockholders to nominate directors.”  The Court found that there are legitimate reasons as to why the AIM Board would want information on “arrangements and understandings” concerning director nominations, and that such information would also be critical to stockholders deciding on which director candidates to support. However, the Court also determined that it did not have to reach a decision on whether the AIM Board’s actions in rejecting the dissident’s nominations were reasonable, as lingering factual disputes alone prevented the Court from granting the dissident’s request for an injunction.


  • Dissident stockholders must comply with both the new universal proxy rules and the company’s advance notice bylaw requirements. Companies should consider amending their bylaws to (i) provide that if a dissident shareholder fails to comply with the requirements of Rule 14a-19, the company will disregard any proxies and/or votes solicited for the dissident shareholder’s nominees and (ii) require dissident shareholders to provide a certification and/or reasonable evidence that they have met the requirements of Rule 14a-19.
  • Companies should continue to review their advance notice bylaws to ensure that the terms are unambiguous when “given their commonly accepted meaning” – any ambiguity in an advance notice bylaw will be resolved “in favor of the stockholder’s electoral rights.”
  • Companies should ensure that advance notice bylaw requirements serve a “proper corporate purpose.” A board’s actions in rejecting a dissident’s nominations – even when the dissident has failed to comply with an advance notice bylaw – may still be subjected to enhanced judicial scrutiny in order to assess whether the bylaw requirements served a legitimate corporate purpose and whether the board’s actions in rejecting the nominations were reasonable.   

[1]   See Proxy Rules and Schedule 14A/14C Compliance and Disclosure Interpretations Questions 139.04, 139.05 and 139.06 available here.

[2] Additionally, Question 139.06 confirms that a dissident must furnish its own universal proxy card to shareholders representing at least 67% of the voting power of shares entitled to vote on the director election contest as part of its meaningful solicitation efforts, and cannot simply capitalize on the inclusion of its nominees on the company’s universal proxy card.