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.