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Automatic Stay Held Not Applicable to Shareholder’s Right to Compel Shareholder Meeting

In re SS Body Armor I, Inc., No. 10-11255 (CSS), 2015 WL 1523775 (Bankr. D. Del. Apr. 1, 2015)

In this Opinion, Delaware Bankruptcy Court Judge Christopher S. Sontchi adopted previous holdings of the Court of Appeals for the Second Circuit and the Delaware District Court to rule that the right of a shareholder to compel a shareholder meeting for the purpose of electing a new board of directors continues during a bankruptcy proceeding unimpaired by the automatic stay.  See Manville Corp. v. Equity Sec. Holders Comm. (In re Johns-Manville Corp.), 801 F.2d 60 (2d Cir. 1986); Official Bondholder Comm. v. Chase Manhatten [sic] Bank (In re Marvel Entm’t Grp., Inc.), 209 B.R. 832 (D. Del. 1997); see also NKFW Partners v. Saxon Indus., Inc., No. 7468, 1984 WL 8234 (Del. Ch. Aug. 8, 1984).  The right extends to commencing state court proceedings to compel a shareholder meeting, but is not unfettered.  As noted by Judge Sontchi, the bankruptcy court is entitled to enjoin a meeting or the implementation of a meeting’s results if “clear abuse” is found (i.e. a showing that the shareholders’ action to elect a new board would delay and jeopardize a debtor’s reorganization).  Such injunction must be sought from either the bankruptcy court through an adversary proceeding as required by Bankruptcy Rule 7001(7) or the state court presiding over the motion to compel.