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Bankruptcy Litigation Securities Litigation

Fifth Circuit Affirms Shareholder Veto of Chapter 11 Petition

“Federal law does not prevent a bona fide shareholder from exercising its right to vote against a bankruptcy petition just because it is also an unsecured creditor,” held the U.S. Court of Appeals for the Fifth Circuit in In re Franchise Services of North America, Inc. According to the court, applicable Delaware law would not “nullify the shareholder’s right to vote against the bankruptcy petition.”

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“Federal law does not prevent a bona fide shareholder from exercising its right to vote against a bankruptcy petition just because it is also an unsecured creditor,” held the U.S. Court of Appeals for the Fifth Circuit on May 22, 2018. In re Franchise Services of North America, Inc., 2018 WL 2325909, 1 (5th Cir. May 22, 2018). According to the court, applicable Delaware law would not “nullify the shareholder’s right to vote against the bankruptcy petition.” Id.

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