## Facts

- Franchise Services of North America, Inc. (FSNA), a car-rental company, acquired Advantage Rent-A-Car.
- Macquarie Capital (USA) Inc. structured the acquisition financing and formed Boketo LLC, which invested $15 million for 100% of FSNA’s preferred stock.
- The preferred stock was convertible and could have resulted in Boketo owning about 49.76% of FSNA’s equity.
- As part of the transaction, FSNA reincorporated in Delaware and adopted an amended certificate of incorporation.
- The certificate required, as a prerequisite to a voluntary bankruptcy filing, consent of a majority of each class of FSNA’s common and preferred shareholders.
- FSNA owed Macquarie approximately $3 million in fees; unpaid, Macquarie became an unsecured creditor while its subsidiary Boketo remained FSNA’s sole preferred shareholder.
- After the acquisition performed poorly and Advantage filed bankruptcy, FSNA filed a Chapter 11 petition without seeking the class votes required by its charter.
- Boketo moved to dismiss the Chapter 11 case as unauthorized; FSNA argued the consent requirement was invalid under federal bankruptcy policy and Delaware law because it functioned as a creditor blocking right.

## Issues

1. Whether federal bankruptcy law invalidates a Delaware charter provision requiring shareholder consent to file a voluntary Chapter 11 petition when the shareholder is also affiliated with a creditor.
2. Whether, under Delaware law, Boketo was a controlling shareholder owing fiduciary duties that would limit its ability to withhold consent to a bankruptcy filing.
3. Whether FSNA’s Chapter 11 petition was unauthorized and subject to dismissal for failure to comply with the charter’s consent requirement.

## Decision

- The Fifth Circuit affirmed dismissal of FSNA’s Chapter 11 case as unauthorized.
- The court held state corporate law governs the internal corporate authorization required for a voluntary bankruptcy petition.
- The court held federal bankruptcy law did not negate Boketo’s charter-based voting rights because Boketo was a bona fide equity holder despite its creditor affiliation.
- The court held Boketo was not a controlling shareholder under Delaware law and therefore owed no fiduciary duty restricting its vote on the bankruptcy filing.
- The court narrowed the certified questions to avoid issuing an advisory opinion and declined to decide the general validity of “golden share” or blocking-right arrangements outside the dispute presented.

## Legal Principles

- Corporate authority to file a voluntary bankruptcy petition is determined by applicable state corporate law and the corporation’s governing documents.
- A charter provision requiring approval by specified shareholder classes may render a bankruptcy petition unauthorized if the required approvals are not obtained.
- Federal bankruptcy policy does not automatically preempt a bona fide equity holder’s state-law voting rights merely because the shareholder (or its affiliate) is also a creditor.
- Under Delaware law, a shareholder is controlling only if it holds majority voting power or exercises actual domination and control over corporate decisionmaking; absent control, the shareholder does not owe controller fiduciary duties that constrain voting in its own economic interest.
- Federal appellate review under certified-question procedures must remain tied to the concrete dispute and may be narrowed to avoid advisory rulings.

## Conclusion

Because FSNA’s Delaware certificate of incorporation required majority consent of each stock class to authorize a voluntary Chapter 11 filing and FSNA filed without obtaining that consent, the petition was unauthorized; the Fifth Circuit enforced the charter provision, rejected federal and Delaware-law invalidity arguments on these facts, and affirmed dismissal.


In re Franchise Servs. of N. Am., Inc., 891 F.3d 198 (5th Cir. 2018)