Litigation

Chancery Refuses to Defer to Bankruptcy Stay in Ordering Shareholder Meeting

By Francis G. X. Pileggi, Esq.

 In Fogel v. U.S. Energy Systems, Inc., 2008 WL 151857 (Del. Ch., Jan. 15, 2007), read opinion here, the Delaware Chancery Court refused to defer its decision to order a shareholders' meeting pursuant to DGCL 211, despite the "automatic stay" provision of Section 362 of Chapter 11 of the Federal Bankruptcy Code. Between the date that the court ordered (last month) the meeting to be held but prior to setting an exact date, the company filed for bankruptcy in New York's Southern District. The Chancery Court's prior decision was summarized on this blog here.

The Chancery Court cited to a decision of the U.S. Court of Appeals for the Second Circuit--which in turn relied on a Delaware Supreme Court decision, that asserted the "well-settled rule that the right to compel a shareholders' meeting for the purpose of electing a new board subsists during reorganization proceedings." Moreover, the Chancery Court relied on a U.S. Supreme Court decision for the principle that:  "a corporation in Chapter 11 reorganization continues to owe duties to its shareholders and that 'the passage into bankruptcy does not sound the death knell for the shareholders' role in corporate governance.'"

Full post as published by Delaware Corporate and Commercial Litigation Blog on January 20, 2008 (boomark / email).