In Re Franchise Services of North America, Inc.
United States Court of Appeals for the Fifth Circuit
891 F.3d 198 (2018)
- Written by Rose VanHofwegen, JD
Facts
Car-rental company Franchise Services of North America (FSNA) (debtor) acquired Advantage Rent-A-Car (Advantage). To finance the transaction, investment bank Macquarie Capital (U.S.A.) Inc. (Macquarie) formed a wholly owned subsidiary, Boketo LLC, which invested $15 million in exchange for 100 percent of FSNA’s preferred stock in convertible equity. If converted, Boketo would own a 49.76 percent equity interest in FSNA as its single largest investor. As a condition, FSNA had to reincorporate in Delaware and adopt a new incorporation certificate that prevented it from liquidating or filing for bankruptcy without majority shareholder consent. FSNA also agreed to pay Macquarie $3 million in fees but never did. Six months later, Advantage filed bankruptcy. FSNA followed a few years later by filing a Chapter 11 petition without a shareholder vote. Macquarie and Boketo moved to dismiss the bankruptcy petition as unauthorized. FSNA countered that the shareholder consent requirement was an invalid restriction on its right to file bankruptcy and violated Delaware law. The bankruptcy court dismissed the petition. FSNA appealed.
Rule of Law
Issue
Holding and Reasoning (King, J.)
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