Franchise Services of N.A., Inc. v. U.S. Trustee

The appeals court avoids ruling broadly on the ability of a golden share or blocking provision to bar a company from filing bankruptcy voluntarily.

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Case Type:
Business
Case Status:
Affirmed
Citation:
No. 18-60093 (5th Circuit, May 22,2018) Published
Tag(s):
Ruling:
Fifth Circuit affirmed bankruptcy court (SD Miss) on direct appeal of order dismissing chapter 11 case based on failure to obtain shareholder consent for bankruptcy. Federal law does not prevent bona fide shareholder from exercising its right to vote against a bankruptcy peitition just because it is also an unsecured creditor. Issue of corporate authority to file bankruptcy petition determined by state law. Debtor, as Delaware corporation, was governed by Delaware corporate law. Under Delaware law, shareholder is entitled to vote against filing a bankruptcy petition.
Procedural context:
Bankruptcy court granted shareholder's motion to dismiss chapter 11 case. The bankruptcy court certified the debtor's direct appeal to the Fifth Circuit.
Facts:
Macqaurie Bank formed subsidiary Boketo to acquire 100% of FSNA's preferred stock for $15 million equity investment. At same time, FSNA, national auto rental car company, reincorporated in Delaware and amended its certificate of incorporation. Amended certificate required consent of majority of each class of FSNA's common and preferred shareholders. Preferred stock carried with it right, granted in certificate of incorporation, to vote on certain corporate matters, including any "liquidation event," which included bankruptcy. FSNA acquired subsidiary, Advantage Rent-A-Car, but acquisition caused insolvency. FSNA filed bankruptcy without obtaining approval of Boketo. Boketo and Macquarie moved to dismiss for failure to obtain Boketo's consent.
Judge(s):
King, Jones, Graves

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