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Restricting Corporate Authority to File Bankruptcy

A dramatic recreation of the fight over corporate authority to file bankruptcy.

The Fifth Circuit recently issued an opinion that federal bankruptcy law does not prohibit a bona fide shareholder from exercising its right to vote against a bankruptcy filing notwithstanding that such shareholder was also an unsecured creditor. This represents the latest successful attempt to preclude bankruptcy through golden shares or bankruptcy blocking provisions in corporate authority documents.

In this post on the Bankruptcy Cave, Bryan Cave Leighton Paisner attorney, Jay Krystinik, analyzes how the Fifth Circuit Affirms Dismissal of Bankruptcy Case Due to Lack of Corporate Authority to File (and potentially provides a blueprint for veto powers over bankruptcy filings).

“There is no prohibition in federal bankruptcy law against granting a preferred shareholder the right to prevent a voluntary bankruptcy filing just because the shareholder also happens to be an unsecured creditor by virtue of an unpaid consulting bill. . . . In sum, there is no compelling federal law rationale for depriving a bona fide equity holder of its voting rights just because it is also a creditor of the corporation.”

The Fifth Circuit was careful to limit its holding to the facts of this case. “A different result might be warranted if a creditor with no stake in the company held the right. So too might a different result be warranted if there were evidence that a creditor took an equity stake simply as a ruse to guarantee a debt. We leave those questions for another day.”

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July 2012 Client Alerts

Two Key Rulings of the Supreme Court

A “Common Sense” Approach to Overtime Exemptions.  The Supreme Court’s recent ruling in Christopher v. SmithKline Beecham Corp., DBA GlaxoSmithKline established that when classifying employees as exempt or nonexempt under the Fair Labor Standards Act, employers should not abandon common sense and industry practice.  The Christopher case puts the Department of Labor and potential plaintiffs on notice that unreasoned and overly narrow interpretations of the exemptions should be rejected by courts, especially when such interpretations would subject business to unfair surprise.

Supreme Court Strikes Down Much of Arizona Immigration Law.  Arizona enacted the Support our Law Enforcement and Safe Neighborhoods Act in 2010 in an attempt to address immigration concerns within its borders.  In a 5-3 decision, the Supreme Court struck down a significant part of the Arizona law.

For summaries of these two important rulings of the Supreme Court, please click here for the Labor and Employment Client Service Group’s Alert published July 16, 201.

New York Appeals Court Decision Highlights Defenses for Financial Institution Defendants Against Structured Product Claims.

A recent decision from the New York Court of Appeals highlights some of the winning arguments financial-institution defendants can make in state-court litigation brought by investors in structured financial products.  In Oddo Asset Management v. Barclays Bank PLC, the Court of Appeals affirmed the dismission of claims for aiding and abetting breach of fiduciary duty and tortious interference with contract.  Although the Court did not define any new legal principles, its decision illustrates the ways existing law can be applied to defeat claims against defendants alleged to have played an important role in the distribution of failed investments.  To learn more about the decision in this case, please click here to read the Securities Litigation and Enforcement Client Service Group’s Alert published July 9, 2012.

Employee Testimonials Can be Risky Business

Online retailers often permit (and encourage) consumers to review their products.  Reviews — whether done on the retailer’s website or on a third-party website — serve a dual purpose of engaging consumers to interact with the retailer and providing a ready source of testimonials that can be used in future marketing.  Over the past several years the FTC has warned that consumers can be deceived when a testimonial is written by a person that has a material connection with the retailer.  The FTC has launched at least a half-dozen investigations involving deceptive testimonials, and, in early July, the FTC announced its largest testimonial related settlement to date — $800,000.  To read more about how retailers can avoid liability, please click here to read the Alert published by the Retailer & Consumer Products Group on July 10, 2012.

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