The Nuts & Bolts of Ipso Facto Clauses and Golden Share Arrangements That May Sidestep the Bankruptcy Code’s Prohibition

Laura Davis Jones and Jonathan Kim
July 15, 2021

In this article, Laura Davis Jones and Jonathan Kim discuss the general prohibition under the Bankruptcy Code of  the enforcement of “termination on bankruptcy” provisions—ipso facto clauses—that are commonly used in many types of business contracts. Among the devices lenders and creditors have employed to skirt this prohibition is the "golden share," an equity interest (often, preferred stock) that gives its holder certain blocking rights, which may include the right to block a company’s bankruptcy filing. Some courts have approved of golden-share provisions. However, a number of courts—particularly, the Delaware bankruptcy courts dealing with debtors organized under Delaware law—have refused to sanction the exercise of golden share provisions in the particular cases.

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Reprinted with permission of DailyDAC. All rights reserved. 

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