Delaware Chancery Clarifies Void v. Voidable Corporate Acts: Why it Matters and What to Do

In January 2026, the Delaware Supreme Court issued a seminal decision in W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 2026 WL 184868 (Del. Jan. 20, 2026) discussing void v. voidable corporate acts. Delaware Court of Chancery recently issued the most comprehensive decision interpreting Moelis and applying it practically. See Dollens v. Goosehead Insurance, Inc., C.A. No. 2022-1018-JTL (Del. Ch. June 30, 2026), available at https://courts.delaware.gov/opinions/download.aspx?id=397670

Dollens is highly significant because the distinction between these acts matters. Historically, void acts could not be cured while voidable acts can be fixed: the difference decided if a company deal stays valid. See, generally, Southpaw Credit Opportunity Master Fund v. Roma Restaurant Holdings (Del. Ch. Feb. 1, 2018); CompoSecure v. CardUX (Del. Ch. Feb. 1, 2018, revised Feb. 12, 2018); and In re Oxbow Carbon Unitholder Litigation (Del. Ch. Feb. 12, 2018). The distinction is less significant now because, as Dollens notes, the concept of incurable contract voidness has been abrogated legislatively. See Dollens Slip. Op., footnote 9. But it remains highly salient. The statutory cure under 8 Del. C. § 204 and 8 Del. C. § 205 applies primarily to failures of authorization. The statutory cure is not always possible, equitable defenses to void actions remain unavailable, and a court still cannot validate an incurably void act. Dollens Slip Op. at 18.

Moelis introduced the test of hypothetical legal significance: under this test, an action that violates Section 141(a) of the DGCL – a critical provision governing director and corporate action – that action can still be voidable rather than void if there was some hypothetical alternative, compliant means of achieving the action. Dollens Slip. Op. at 3-4.

Highlights

The most significant aspect of the decision is its clarification of Moellis’s introduction of hypothetical legal significance. A provision has hypothetical legal significance and is not void if it could be implemented in a corporate charter under Section 102(b)(1); a provision has hypothetical legal significance and is not void if it could be implemented in the charter under Section 102(b)(1). A provision passes muster under Section 102(b)(1) if it neither violates a mandatory provision of Delaware law nor violates Delaware public policy. Dollens Slip Op. at 33-34. In other words, provisions and corporate acts that are not permissible under existing governance structure can potentially be implemented as long as they don’t violate law or public policy. A retroactive cure, so to speak.

The decision indicated that there are no core areas of board power a corporate charter cannot regulate. Dollens Slip Op. at 39-41.

The decision indicated hypothetical legal significance turns on whether “functionally equivalent outcome is achievable”; in other words, there does not have a permissible way of achieving the desired action that exactly replicates the challenged, impermissible act. It is enough that there is a functionally equivalent outcome that could be achieved in a way that does not violate the DGCL or Delaware public policy. Dollens Slip Op. at 46-47.

The Court indicated that Moelisenables more opportunities to tailor or cabin fiduciary duties and corporate governance responsibilities by charter or contact. constrain or tailor fiduciary duties. Dollens Slip Op. at 72-80.

Lowlights

The opinion has a number of other interesting but less significant nuggets that provide food for thought.

The Court identified several cases that are abrogated by the Moelis Dollens Slip Op. at 48, et seq.
The predicted that the impact of Moelis on various other Section 141(a) issues. Dollens Slip Op. at 61.
In connection with an analysis of whether the class action settlement should be approved and what amount of attorneys’ fees in the context of a class action settlement it was asked to approve, the Court noted that some law firm partners are now charging close to or more than $3,000 an hour and that a lodestar rate of roughly $1,500 per hour would equate to what some junior partners are charging. Dollens Slip op. at 103-104.

What You Should Do

In a nutshell, companies must structure governance terms to satisfy the doctrine of hypothetical legal significance, explicitly include fiduciary outs, and rely on affirmative defenses.

Risks always remain if a company wants to structure terms that could be interpreted as incurably void. But there may still be business reasons to “take a flyer” and so structure them. These are tactics that companies can use to help provide protection and fit into the “voidable” bucket if there is the reasonable expectation that the structure or specific corporate acts could reasonably be challenged as void.

There are also post-adoption risk management techniques that can be employed: 1. Utilize corporate ratification procedures quickly if a governance provision is challenged, turning provisionally effective acts into fully secure ones; 2. Structure operations and disclosures to allow the corporation to invoke affirmative defenses—such as laches—if an agreement is late-challenged by investors.

Dollens also illustrates that there may be opportunities to tailor or limit certain fiduciary duties or corporate responsibilities.

Contact me at jbrooks@kleinbard.com for a compliance review and if you need a review of shareholder and governance agreements against DGCL Section 141(a) and recent amendments like Section 122(18) to avoid facial statutory violations that trigger incurable voidness.