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No Stay for the Weary
The Delaware Court of Chancery recently emphasized that issues of corporate governance remain the purview of the state of incorporation, notwithstanding the filing of a bankruptcy petition and the accompanying automatic stay, which ordinarily acts to halt proceedings against the debtor. Most significant about the court's opinion in Fogel v. U.S. Energy Systems, 2008 WL 151857 (Del. Ch.) is not that it retained jurisdiction over corporate governance issues following a bankruptcy petition, but rather, the ease with which the court reached its decision. Notably, the court took just one day to issue its opinion and did so without allowing the Bankruptcy Court the opportunity first to consider whether a shareholder could continue to seek relief from the Court of Chancery in an action to compel the company to hold an annual meeting. Given this period of economic uncertainty and the recent increase in bankruptcy filings, this decision should make clear that companies cannot hide behind the Bankruptcy Code's automatic stay to avoid corporate governance obligations.
The Fogel Case
On Dec. 13, 2007, Chancellor Chandler issued a post-trial memorandum opinion directing U.S. Energy Systems, Inc. ('U.S. Energy') to hold a shareholder meeting. In its opinion, the court determined that Asher Fogel had not been terminated as U.S. Energy's Chief Executive Officer when Mr. Fogel exercised the right conferred on the Chief Executive Officer in the company's bylaws to call a special meeting and, therefore, the exercise of this power by Mr. Fogel was valid and effective. Concerned that the company would take steps to evade the court's ruling, Mr. Fogel filed a motion requesting that the court order the company to hold the shareholder meeting on Jan. 7, 2008. After the parties briefed the motion, but before the court could rule on it, the company filed for bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York on Jan. 9, 2008.
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