Recent Delaware Chancery Court Decision May Be "Wake-Up" Call for Shareholders to Play Larger Role in Corporate Bankruptcies
The next wave of corporate bankruptcies is on the horizon (at least we hope.) Under the dictates of the absolute priority rule, shareholders' interests are paid last. Only when a company is solvent will the court approve the appointment of a committee of equity-holders to represent their interests. This means that in almost all major cases, shareholders are not represented by a committee and historically have had little or no say over the course of a reorganization. A recent case from the Delaware Chancery Court, however, may be a "wake-up" call for shareholders to pursue their rights in corporate bankruptcy cases. In fact, the course of corporate reorganizations may be altered radically during this new wave of filings--and forever after--if shareholders pursue the broad range of corporate governance rights that are available to them.
This article details the recent corporate governance fight in the U.S. Energy Systems bankruptcy case. The Delaware Chancery Court's decision may provide fertile ground for otherwise disenfranchised shareholders to participate more meaningfully in chapter 11 proceedings.