![]() On the one hand are cases that generally uphold such rights in the hands of equity holders, so long as they do not operate as a de facto bar on the debtor’s ability to file for bankruptcy. ![]() 1 In so deciding, Judge Walrath ruled that the exercise of “a blocking right by a shareholder who is not a creditor is void as contrary to federal public policy that favors the constitutional right to file bankruptcy.” 2 Judge Walrath’s decision, if validated by other courts, would represent a potentially significant shift in the ability of a minority shareholder to exercise a contractual right to block a putative debtor’s bankruptcy filing.Īlthough the Pace Industries decision addressed an issue of first impression for the United States Bankruptcy Court for the District of Delaware, it exists within the context of a series of decisions in recent years that address the enforceability of a creditor’s or shareholder’s use of a “golden share” or similar right that provides such holder the ability to prevent a company’s bankruptcy filing. On May 5, 2020, Judge Mary Walrath of the United States Bankruptcy Court for the District of Delaware delivered a bench ruling that denied a minority shareholder’s motion to dismiss the Chapter 11 cases of Pace Industries and certain of its affiliates on the grounds that the shareholder’s contractual right to block a bankruptcy filing under the debtor’s certificate of incorporation was contrary to public policy. ![]()
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