Looking for tougher loan terms? Nevada Can Help | Allen Matkins

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Nevada corporate law protects directors and officers. Following the Delaware Supreme Court decision in Smith vs. Van Gorkum, 488 A.2d 858 (1985), the Nevada Legislature amended the law allowing the release of directors and officers. In 2001, the Nevada legislature took a big step forward by making the waiver automatic. Nev. Statistics. 2001, ch. 601, § 3. Three authors (Zhihong Chen, Ningzhong Li and Jianhua Shen) hypothesized that the 2001 changes in Nevada exacerbated conflicts between corporate borrowers and their lenders. They concluded that lenders had responded to these escalating tensions by imposing more unfavorable loan terms, such as higher interest rates and more restrictive terms. Their article, which will be published in Journal of Law and Economics, available here

While I cannot question their methodology, I doubt their central premise that “everything has changed, completely changed.”one in 2001. Prior to the 2001 amendments, Nevada law allowed corporations to participate in a low liability scheme by passing a charter amendment exempting directors and officers from liability. Presumably, many corporations have taken advantage of this option. In addition, I disagree with the authors’ assertion that “prior to the June 2001 legislative changes, Nevada corporate law was similar to Delaware’s corporate law.” Prior to 2001, the statute of Nevada permitted exemption from liability for both officers and directors. This remains a significant difference between Nevada and Delaware. Nevada’s previous statute also did not include the exclusion of Delaware for breach of duty of loyalty.

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1. William Butler Yeats, Easter 1916



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