The Fifth Circuit Considers Enforceability of Bankruptcy Blocking “Golden Share” Provisions in Franchise Services

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Weil Summer Associate MJ Koo contributed to this post

In a recent decision, the Fifth Circuit narrowly held that federal law does not prevent a bona fide shareholder from exercising its voting right in the company’s charter to prevent the filing by the company of a bankruptcy petition merely because it is also an unsecured creditor.  In re Franchise Servs. of N. Am., Inc., 891 F.3d 198, 203 (5th Cir. 2018).  Although the Fifth Circuit did not make a broad ruling on the legality of provisions that give parties the ability to block a company’s filing of a voluntary bankruptcy petition (often called “golden shares” or “blocking provisions”), it touches on interesting issues of creditor and shareholder rights in that regard.
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