Everyone, including the least empathic in our society (aka, lawyers), knows that we should seek to uphold the golden rule and “do unto others…” with respect to family, friends, and acquaintances, but does this also apply in the corporate world? Apparently so, as a Delaware bankruptcy court just ruled that preferred shareholders with a bankruptcy-filing blocking right (also known as a “Golden Share”) must consider the effects on other shareholders and all other creditors when exercising such right. This bench ruling departed from the path taken by the Fifth Circuit, which had concluded that a minority shareholder’s blocking right, as exercised, did not impose a fiduciary duty on the shareholder. The Delaware court, in splitting from the Fifth Circuit, reasoned that federal public policy requires courts to look at what is in the best interest of all parties and prioritizes debtors’ constitutional right to file bankruptcy over the bankruptcy-filing blocking right explicitly granted in corporate governance documents. Continue reading for our take on why this split is so noteworthy, particularly for shareholders considering whether to exercise a Golden Share: Delaware Bankruptcy Court Diverges from Fifth Circuit: Minority Shareholder’s Blocking Right Invalidated and Fiduciary Duty Imposed.
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