The Golden Shares Dilemma

An Analysis of Federal Common Law, Fiduciary Duties, and the Enforceability of Bankruptcy Blocking Provisions in Corporate Control Documents

The COVID-19 pandemic brought unprecedented challenges to American businesses. For those businesses facing the most pressure, the American bankruptcy system promised relief and a means of emerging from the crisis. This system is driven by a historic policy of liberal access for debtors, with attempts by creditors to block bankruptcy filings under loan terms routinely nullified.

Yet the promise of bankruptcy for some debtors may prove to be illusory, thanks to a device known as the “golden share.” Instead of inserting bankruptcy blocking provisions in loan documents, creditors obtained equity and established their rights to block bankruptcy filings in corporate control documents. While the only appellate court to speak directly on the issue has suggested golden shares are valid, a post-COVID-19 case from the bankruptcy court in Delaware expressed its disapproval of this device. An emerging split of authority threatens to create only more uncertainty for corporate debtors already facing significant pressures.

This Note tracks the dilemma of golden shares. It first reviews the history of golden shares, as well as the most important cases dealing with this device. It explores the theory behind the golden shares dilemma, including the role of fiduciary duties in the analysis. The Note then proceeds into a discussion of federal common law. The Note concludes with a proposal that implementing federal common law fiduciary duties through a burden-shifting framework provides the optimal means of resolving the golden shares dilemma.

a. Juris Doctor, Magna Cum Laude, University of Illinois College of Law, Class of 2022; Bachelor of Arts, With Distinction, University of Virginia, Class of 2018. I would like to thank Professor Brubaker, for his valuable insight and feedback on this Note; Mom, Dad, and Jack, for all of the help they have provided me over the years; and Maryia, for her unwavering love and support.

The full text of this Note is available to download as a PDF.