During its 2025 session, the General Assembly of Maryland approved House Bill 1171, amending several provisions of the Maryland General Corporation Law (the “MGCL”). House Bill 1171 was signed by Governor Moore and is now codified as Chapter 111 of the Laws of Maryland 2025. The legislation will take effect October 1, 2025. Here are the key provisions (all section references are to the MGCL unless otherwise noted):
Transfers of Assets in Connection with a Mortgage, Pledge or other Security Interest. Section 3-105 of the MGCL requires that a transfer of all or substantially all of the assets of a corporation (a “transfer of assets”) be declared advisable by the board of directors and approved by the stockholders. Among other exceptions to this general requirement, Section 3-104 has long provided that the approval of stockholders is not required for any mortgage, pledge or other security interest in the assets of the corporation. While it is generally understood that a foreclosure proceeding by a secured creditor is not a transfer of assets subject to stockholder approval, the MGCL did not expressly address a foreclosure on assets that are subject to a security interest. More significantly, the MGCL did not address a negotiated transfer of assets that are subject to a security interest, such as a deed in lieu of foreclosure or an alternative debt restructuring transaction approved by a secured creditor.
In order to provide additional clarity, new Section 3-104(c)(1) provides that stockholder approval is not required for a transfer of assets that is collateral for securing a mortgage, pledge or security interest if the secured party exercises its rights under (a) Title 9 of the Maryland Uniform Commercial Code, (b) the Real Property Article of the Annotated Code of Maryland or (c) other applicable law to effect the transfer of assets without the consent of the corporation. Additionally, to address alternative restructuring transactions with a secured creditor, new Section 3-104(c)(2) provides that stockholder approval of a transfer of assets is not required if the board of directors authorizes an alternative sale of assets with the secured party or another person that “(i) results in the reduction or elimination of the liabilities or obligations secured by the assets and (ii) for which the value of the assets is less than or equal to the amount of the liabilities or obligations being reduced or eliminated.” The charter or bylaws of a corporation may override the foregoing provisions by a specific reference to Section 3-104(c) or the subject matter thereof.
New Sections 3-104(d) and 3-104(e) together provide a limitation on the ability to invalidate an alternative transaction with a secured creditor under Section 3-104(c)(2) after it is consummated by challenging the value attributed to the collateral or any consideration received by the corporation or stockholders in the transaction. Section 3-104(e) also expressly preserves the possibility of (1) a proceeding to enjoin the transfer of assets before it is consummated, (2) a breach of duty claim against the directors or (3) a claim for equitable relief.
Contents of Articles of Merger. The new legislation amends Section 3-109(d) to delete the requirement that articles of merger include information about the percentages of partnership or membership interest and the classes or series of partners or members for a limited partnership, partnership or limited liability company that is a party to the articles of merger. This requirement for partnerships and limited liability companies was correlative to the requirement that a corporation party to articles of merger describe its authorized stock in the articles of merger. Because partnerships and limited liability companies typically do not have stated amounts of authorized equity interests and often include complex descriptions of the partnership or membership interests in their governing documents, it was not clear how to comply with the disclosure requirement in articles of merger and it was deleted as unnecessary.
* * *
As always, our colleagues and we are available at any time to discuss these or other matters of Maryland law.
This memorandum is provided for information purposes only and is not intended to provide legal advice. Such advice may be provided only after analysis of specific facts and circumstances and consideration of issues that may not be addressed in this document.