Yiming Sun, ‘The Golden Share: Attaching Fiduciary Duties to Bankruptcy Veto Rights’

ABSTRACT
Under bankruptcy law, a debtor cannot enter into a binding agreement with a creditor to not file for bankruptcy in the future. However, creditors can in effect prevent a corporate debtor from filing for bankruptcy by obtaining a special ‘golden share’ in the debtor and exercising the right to veto its bankruptcy concomitant with such a share. Currently, courts decide whether to invalidate a golden share veto right based on whether the right is equivalent to a bankruptcy waiver. However, the current rule may lead to either underdeterrence of bad faith vetoes or discouragement of good faith corporate decision-making.

This Comment advances a novel approach that draws on the fiduciary duty doctrine in corporate law. It argues that golden shareholders should be viewed as controlling shareholders of the debtor company and therefore bear fiduciary duties with respect to the debtor’s decision to file for bankruptcy. This way, any golden shareholder who vetoes bankruptcy to advance its interests as a creditor risks being punished for a duty of loyalty violation, while shareholders who veto bankruptcy in good faith are protected.

Sun, Yiming, The Golden Share: Attaching Fiduciary Duties to Bankruptcy Veto Rights, University of Chicago Law Review: volume 87, issue 4, article 4 (2020).

Leave a Reply