Given the recent rise of retail traders, meme stocks, and the investor echo chamber in the blogosphere, shareholder activists may emerge more frequently in Chapter 11 bankruptcy cases and agitate for new directors in a bid to preserve perceived equity value. On the one hand, distressed companies facing activist campaigns may reach an agreement with dissident shareholders to resolve their concerns. But in some instances, companies need to seek bankruptcy court intervention to resolve a key governance issue. However, absent “clear abuse” by shareholders, courts have been hesitant to impede shareholders’ corporate governance rights.
Two recent bankruptcy cases serve as examples of the different approaches a company may take against activists. In PG&E’s Chapter 11 cases, when threatened with a proxy fight over its company-driven board refreshment process, the company reached an agreement with certain shareholders that eliminated the need for a proxy contest or court intervention. See In re PG&E, Case No. 19-30088-DM, (Bankr. N.D. Cal. Jan. 29, 2019).