On October 4, 2010, the U.S. Securities and Exchange Commission (SEC) stayed the effectiveness of newly adopted Rule 14a-11 and related rules (establishing proxy access procedures) and amended Rule 14a-8 (related to shareholder proposals regarding the director nomination process), pending judicial review of a legal challenge brought by the U.S. Chamber of Commerce and the Business Roundtable on September 29, 2010. The U.S. Chamber of Commerce and the Business Roundtable are seeking to stop the Proxy Access Rules from taking effect and filed a petition for review of the new rules in the U.S. Court of Appeals for the District of Columbia Circuit and filed with the SEC a motion to stay the effect of the new rules pending such review.
In their petition for review in the U.S. Court of Appeals for the District of Columbia Circuit, the U.S. Chamber of Commerce and the Business Roundtable argued that the "Proxy Access Rules are arbitrary and capricious and otherwise not in accordance with law; do not promote efficiency, competition, and capital formation; exceed the [SEC’s] authority; and violate issuers’ rights under the First and Fifth Amendments to the United States Constitution."
While the SEC did not address the merits of the challenge to the new Proxy Access Rules in its Order Granting Stay, it did decide that a stay of Rule 14a-11 and related rule amendments was consistent with what justice requires, noting that a stay would avoid "potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity." While the petition for review did not request a stay with respect to the amendments to Rule 14a-8, the SEC stay does apply to Rule 14a-8 amendments as well.
The Proxy Access Rules were scheduled to take effect on November 15, 2010. This stay has put that effective date in limbo. For more information regarding the new Proxy Access Rules, see our Alert dated August 27, 2010, titled "SEC Adopts Proxy Access Rules."