While shareholders are at the bottom of the pile in a corporate bankruptcy, it has been surprising to see that they have been gaining attention in a couple of important ways in recent weeks, according to a commentary by Prof. Stephen Lubben in the New York Times DealBook blog on Friday. First, in a recent opinion, Bankruptcy Judge Christopher S. Sontchi recently ruled in In re SS Body Armor I Inc. that shareholders retain their right to call a shareholders meeting to elect a new board in a bankruptcy case. Under Delaware law, a corporation is supposed to hold an annual meeting every year, but there is not really any consequence for failing to do so if nobody complains, according to Prof. Lubben. Because shareholders are routinely “out of the money” in chapter 11 cases, and as shareholders in the U.S. tend to be a dispersed lot, there is often little likelihood that they will complain too much about the lack of a meeting. The second development is a study by Diane Lourdes Dick at Seattle University School of Law that traces the real challenges shareholders face in getting an equity committee appointed or being taken seriously in general. Taken together, Prof. Lubben raises the idea that these developments might be part of an emerging new consideration of shareholders in corporate bankruptcy.
