Fifth Circuit Opinion – In re Franchise Servs. of N Sample Clauses

Fifth Circuit Opinion – In re Franchise Servs. of N. Am., Inc., 891 F.3d 198 (5th Cir. 2018). Hertz was required to divest certain rental car assets as part of its merger with Dollar Thrifty. Macquarie facilitated the divesture of the Hertz assets to Franchise Services. Macquarie would invest $15 million in Franchise Services through a newly formed wholly owned subsidiary (Boketo), take a $2.5 million arrangement fee, and commit to lending capital for operations of Franchise Services. As part of this arrangement, Macquarie required Franchise Services to issue it preferred shares that had the unilateral right to block bankruptcy petitions and other corporate actions. But, the divested Hertz assets were bad, as the value of the assets was allegedly fraudulently misrepresented. A Franchise Services subsidiary shortly after the divestiture acquisition filed bankruptcy and sold all assets acquired from Hertz under bankruptcy protection. Macquarie also backed out on its commitment to lend operating capital and was left with its preferred share investment. Franchise Services refused to pay the $2.5 million arrangement fee. Litigation between Franchise Services and Macquarie commenced in three different forums. Franchise Services determined that it needed bankruptcy protection to sell additional assets to fund its litigation against Macquarie. Franchise Services recognized that Macquarie would not approve a bankruptcy filing that would allow Franchise Services to fund litigation against it. Franchise Services disregarded Macquarie’s blocking rights and filed a chapter 11 bankruptcy petition. Macquarie moves to dismiss the petition as unauthorized, and its subsidiary later joined. The Mississippi Bankruptcy Court denied Macquarie’s motion because it was a creditor but granted the motion of the subsidiary – Boketo. On direct appeal, the Fifth Circuit accepted three certified questions directly related to blocking rights: 1. Is a provision, typically called a blocking provision or a golden share, which gives a party (whether a creditor or an equity holder) the ability to prevent a corporation from filing bankruptcy valid and enforceable or is the provision contrary to federal public policy? 2. If a party is both a creditor and an equity holder of the debtor and holds a blocking provision or a golden share, is the blocking provision or golden share valid and enforceable or is the provision contrary to federal public policy? 3. Under Delaware law, may a certificate of incorporation contain a blocking provision/golden sha...
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Related to Fifth Circuit Opinion – In re Franchise Servs. of N

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