June 01, 2020

MONTH-IN-BRIEF: Bankruptcy & Finance

Janet M. Nadile, Taryn Darling

Bankruptcy Law

Golden Share May Not Be A Golden Ticket Out of Bankruptcy 

By Michael Enright

 A bankruptcy court in Delaware recently weighed in on the ongoing controversy over whether special shareholder approval mechanisms for authorization of a bankruptcy filing actually work to prevent a filing that is not in compliance with the agreed conditions. In the Chapter 11 case of Pace Industries, LLC (In re Pace Industries, LLC, Case No. 20-10927) on May 5, 2020, the court denied the motion of Macquarie Septa (US) I, LLC to dismiss the case, holding that doing so would deprive the debtors of their constitutional right to file for bankruptcy relief. Macquarie held preferred stock, and was not a creditor. The certificate of incorporation of the company was amended at the time of issuance of the preferred stock to require a majority vote of the preferred stock to authorize a bankruptcy filing.  Macquarie’s motion to dismiss was based on the debtors’ failure to obtain that majority approval. The court declined to follow a recent decision from the Fifth Circuit Court of Appeals on relatively similar facts, stating from the bench that a minority shareholder had no more right to block the company from exercising its rights to file a bankruptcy petition than a creditor does. The court also noted that applicable corporate law creates duties owed by the preferred shareholder in that position, and those duties needed to be observed. The law in this area remains unsettled, and bears watching.

Janet M. Nadile

Counsel; Simpson, Thacher & Bartlett LLP

Janet M. Nadile is Counsel at Simpson, Thacher & Bartlett LLP.  Her practice focuses on a broad array of commercial law with an emphasis on issues regarding Articles 8 and 9 of the Uniform Commercial Code.  She advises lenders and borrowers on all aspects of drafting and negotiating collateral security documents in a wide variety of secured transactions, including credit facilities, asset based lending, secured bond transactions, project finance and funds finance.  She also advises on all matters involving collateral subject to the UCC and other statutes, frequently for the technology, media, telecommunications, automotive, healthcare and natural resources industries.  Janet created and conducts the Firm-wide CLE seminars on various aspects of secured lending.

Taryn Darling

Board Member, William H. Dwyer Inns of Court

Taryn began her career as a bankruptcy lawyer almost ten years ago. Her practice includes reorganization, insolvency, receivership, work-outs, and bankruptcy and all related litigation. Taryn has litigated at the trial level and appellate level on behalf of her clients in a number of adversary proceedings and in consumer protection litigation. Taryn’s clients include individuals, business owners, and closely held corporations and businesses. Her breadth of experience in the area of bankruptcy and insolvency enables her to take a preventive approach when clients come to her at the outset of a problem. Taryn develops creative solutions to mitigate the impact or consequences when it becomes clear that a bankruptcy or receivership is the best course of action.