three things one is to answer one of more of the sort of five questions the second is to reverse the judgment that dismissed the bankruptcy and the third is to remain so that the bankruptcy can go valuable asset which is its claims against mcquarrie itself the courtroom group rejected this tactical gambit and give the franchise services the breathing room bankruptcy code allows so that it can go forward and stay alive the reasons for the rule against allowing a creditor can make or force a contract with a debtor not to take m recognized in the constitution and that to allow creditors to make this kind of arrangement would undermine those rights and between lives of your question it's been a long time since i've had to think about this but that's at the bankruptcy but as a matter of delaware law i don't think there's any reason why you can't build this into the charter is there yes or is all your best case and th the cases that we have on that there's no direct case the but this is a we are here these cases important to prohibit this kind of agreement or federal cases based on federal policy trying to protect the rights of the federal predators in bankruptcy but there is a delaware law in this and your honor as the bankruptcy court found there's no you know we can't we haven't got a but the case on the door last actually quite strong the principle in delaware is that if a minority shareholder has control over the border transaction they have a we the legacy business had an equivalent value but say fifteen million in this the whole deal went under because the deal they structured went bankrupt within six months and what we're talking about is right now losses we're not asking this court to prejudge it was it we're asking this court to say they claim a three million dollars success see for that merger which is more than the entire net worth of this this threat blocking cash out merger through certain corporate rights because it wanted to better deal for itself that that was a breach of the new shared duty to the corporation and had to be judged  course well what i'm telling you is this delaware supreme court case called upon the language which says control over a particular transaction a cash card was a sufficient tito who is the appellant here was set up to be a creditor the loan facility was designed this is really very cleverly constructed it was it was a lot of last resort work right it is found in of but i've just given you the correct cite and that is a seven or half million dollar facility that for franchise services for both tito to make a loan to franchise services the fifteen million dollars as a shareholder counts that i have to act like a shareholder and not like a creditor they have a duty to the corporation to maximize the value of the corporation and not exercise undeniable says you cannot make a deal creditor and there cannot make a deal pre partition to not file bankruptcy has absolutely no applicability whatsoever in this case the kito is not a creditor at the time that this deal is struck and the deal as judge jones indicated fifteen million dollars equity interest for forty nine point seventy six percent of the company every case to consider this issue and there are seventy six bankruptcy cases in one district court on appeal from a bankruptcy court every single one has drawn the line in this way if what is actually going on however cleverly disguised by an astute creditor by someone in one of the cases the phrase cleverly insidious is used however it's devised if what's really going on is that a creditor is exercising it right to put itself at the head of the class and make certain that its debt is paid and until it does there will be no bankruptcy if that's what's going on that offends without any question the public policy against a preposition deal not to file bankruptcy it has nothing to do with this case we made a fifteen million dollars investment to be an equity holders the owners of the company being the insiders being to keep though the entity for for the purpose and fiz not sat together and drafted a certificate of incorporation that included a whole lot of rights one of which was we as the equity owners of this company agree that unless we both say we're going to file bankruptcy there shall be no bankruptcy before you make a contribution to an equity entity before you invest and have if you'll pardon the colloquial phrase skin in the game you have an proposition quote a shareholder owes a fiduciary duty only if it owns a majority interest in or exercises control over the business affairs of the corporation what the arguments being made visit here in an attempt to modify the status of the cato as a equity owner and investor the modification is let's let's say it's not really exercising control over the company that matters it's well you're exercising control over this one decision about whether you file bankruptcy and even that isn't right because we didn't have and do not have control over bankruptcy we have the ability to say we want to file bankruptcy and if business doesn't agree we don't have a bankruptcy we can say we don't want to file bankruptcy if isn't a does we don't have a bankruptcy it's not control in any sense of the word and it's certainly not remotely akin to the type of control a minority shareholder must have in order to be considered a majority shareholder that is to say to be considered someone who has to do share duties why is this the case the cases draw the distinction along the following line insider on the one hand and outsider on the other the insiders are those who actually own the company those who have skin in the game and the cases spark that could not be clear you know the best case on the subject is th squier court case and it also happens to be the case was decided all of these cases with the exception of one were decided in the last four years in the squire partners case was decided just last year july of tw seventeen in that case the court said it just like this quote it is one thing to look past corporate governance documents and the structure of a corporation one a creditor was and has n veto a debtors this sition to file the bankruptcy petition it is quite another to ignore those documents when the owners retain for themselves the decision whether to file bankruptcy it is one thing for the courts to overrule a creditor that seeks to block a debtor from filing bankruptcy it is quite another for the courts to overrule the owners of the entity and here's another thing that's really quite extraordinary i listen with something approaching morbid fascination to the idea that certainly was going to say no to this bankruptcy not only is that there no at record evidence to suggest that that's the case the evidence in the record is directly to the contrary told by a spec teller who is a manager of  to what did mr back teller say and this is not this is directly from his testimony he said they weren't asked it was told the day before that there was going to be a bankrup any time that it was entering into preparatory steps that is to say in the words of section nine point one of the certificate of incorporation taking any quote preparatory steps towards or filing a petition for bankruptcy answer no question would it have been possible f more cash insufficent if it thought that was an appropriate step rather than a bankruptcy answer of course question would it have been possible for mccoury to engage in negotiations with any secured creditors of business as a way of staving off the bankruptcy answer of course question you were not given the opportunity to consider those options correct correct of course he wasn't given the opportunity why not also in the record we have mr nash who is the party that  oversee this bankruptcy filing and what does he say he wasn't even made aware of insider appointment employment agreements that mr mcdonnell had with fiza he wasn't made aware that the bankruptcy would have benefited mr macdonald and what i said to him when i asked him is that something he would have known answered well did you know i would like to have known but i didn't and there it is the question why would it make a difference answer had we known about those agreements prepared titian we might have made different recommendations for how the case was pursued or how the sale process was set up had we known post petition but before the sale process sales procedures were filed we might have made some attempt to have some negotiations with the counter parties question is mr mcdonnell one of those counterparty his answer yet mr mcdonald i asked him also about his expertise in advising debtors as to the wisdom and timing of a petition i asked him if he had that expect these yes he does did you deployed here answer not in this case because they didn't ask right answer that's right you didn't ask them ok you contacted me here on june twenty first i believe you said we're going to have this filing it's got to be done boom boom boom it's going to be filed before the end of june so i've got about a week while i asked them quote who's the wolf at the door judge jones who the secured creditors answer let me just be clear i asked debtors counsel i did miss the board who's the secured creditor that forced the case into bankruptcy answer there is no security or here's what's going on in a case of this type when an equity owner such as the key to makes an investment on the magnitude order of magnitude of fifteen million dollars it could easily say you know what we don't want to be involved in the profits and losses we don't want risk we don't want to take any distributions we don't want to have the benefit of tax consequences we don't want to make a capital contribution you can say all of us think we just want to be a creditor will lend you the money and you pay us back if that had happened and as part of the deal but quito had said and by the way until we're paid back that fifteen million you can't file transgress that's what's going on here so this is just a clever remodel cation a just a really revisionist history about what actually happened but it and the cases and they are as i say there are seven cases the seven cases all in their in their essence although some approved the provision at issue and some rejected every single one of them abides the same principle and that principle is when the owners retain the right to not file bankruptcy that's kosher and when a creditor says i'll give you the money but until i'm repaid no no no on the bankruptcy petition that's no good that's not kosher so in re global ship systems decided in two thousand and seven ok there's a consent right written right in the elysees operating agreement that's a southern district of georgia bankruptcy case all of the counter parties to the l l c were creditors of the debtor the court nevertheless enforces a consent right in the favor of the creditor why quote because the main creditor was also a twenty percent equity people the consent right did not expire upon payment of the company's call drawbridge pump payment drawbridges loan consent right was dependent soley on the equity holder status not the creditor status so to hear in and there you have one of the things that you see in these cases is a clever device that a debtor and a creditor will employ to strive to circumvent this workaround to try to circumvent the public policy one of the things you see in these cases is well we'll have an outside director will but we'll call him an independent director right he's a special director and what the cases say is fine if that's what you're doing and you're going to appoint someone else to make those decisions that person's a director  blocking director the case that the lake michigan has about a playbook that part of the playbook to have a blocking director be a fiduciary of course the outside director has to be a fiduciary because it's not presumed that that individual is going to act in its own best interest the problem in this case is there was a falling out between fiza and mcquarrie because fiza has come up with the fanciful notion and i believe and the judge jones indicate well we you know we there's a lawsuit we're not going to get to the merits of it i can't wait to get to the merits of it i can't wait to have that examined so we can explode the notion that there even should have been a falling out but there was and physically came to the view that its enemy was its forty nine point seven six percent partner in this company so from that moment forward they want to treat us as a creditor and an enemy creditor we're not not at all so from  perspective we don't have a fiduciary duty as a minority shareholder but we have self interest of course we're going to do what's in the interest of the public why would we not why does every single case draw the distinction between insiders and outsiders for exactly the reason the court said in squire partners exactly that reason that it's one thing to look past the documents and the structure one of the creditors has negotiated the right to block bankruptcy and to ignore that when the owners retain the decision is silliness so it starts at about fiduciary duty that's and that's just the beginning of the story i would suggest to you that not only do we not have a  but we weren't even asked we were there's no evidence in this record nor could there possibly be that even if we had a fiduciary duty let's suspend disbelief and pretend that when we made our investment instead of investing forty getting forty nine point seventy six percent let's pretend we got fifty two percent now we're the majority shareholder right so we can't your owners where this from your days of the delaware like you can't read obvious can oppress the minority shareholder that's a given right so now we're majority ok that's great think think about this we now over fiduciary duty we have to do the right thing for everybody not just to protect our interest we've got to protect everyone's interest ok so in that instance you come to me and say we really think that this case ought to go into bankruptcy the company want to go into bankruptcy and i say why well we have this great asset and their asset is of fanciful case they're going to pursue because they think they were short changed in the hertz transaction ok let's talk about it i have a neat insight into that i maybe even have sworn statements that explode that idea why don't we sit down and true partners in the sense of it we're both part of the same ownership team and i'll tell you why a that case isn't going anywhere now let me tell you something else i put fifteen million bucks into this maybe i want to do something completely different maybe i want to get more money and by the way before you decided the last resort and tobias backed teller's testimony was it's a last resort bankruptcy of horses right no one wants to file bankruptcy if they don't have to have you gone to litigation funding source you've told us that the greatest asset you have is litigation there are any number of companies out there that will lend you money against that kind of asset have you explored that that would require you instead of coming up with a fanciful notion that you have a claim that would require you actually to convince someone you needed to invest in that claim to do so have you done that no well and that's why when i put mr back teller on the stand i asked him could you have infused cash sure we could have we could have talked about al well why didn't we were never asked we got a telephone call the day before so we're filing right now boom over so the person mr nash jonathan mash who's going to oversee the bankruptcy he's not told that mr mcdonald has insider deals and he's going to get the benefit of the sale of this you saved and we're not told why they want bankruptcy i ask him what the who's the wolf at the door there's no wolf at the door who's a secured credit companies don't willy nilly walk down the not here not when you think the way to the path to the waterfall for you is to have a bankruptcy filing that will enable you to sell yourself an asset ask mr nash if he knew about these tom mcdonald insider employment agreements know would you like to know i would've but i didn't so what's really going on here in it's a very interesting thing as you go through and i and i will tell you that i now know more than i ever really wanted to know about this particular issue and i take solace from i think it was woodrow wilson on the night before his comprehensive finals  princeton he said my only solace is that this information i've learned will not burden me long i shall soon forget it this is exactly how i felt the night of the bar exam i've now i know the stuff yes what's going on if you're an insider you get to say because it's presumed that you're going to do the right thing why wouldn't you it's presumed that you're going to act in your interest and that your interests are at least into the tune of forty nine point seventy six percent aligned with the other side for example suppose just suppose we were to actually have this lawsuit filed by fishermen against mcquarrie suppose instead of just filing it willy nilly they come to us and observe that corporate formality which if that's such material litigation they should have consulted us according to the certificate of inquiry suppose they did so if we won we thought this is not because we are a forty nine point seventy six percent of business if we won we'd get forty nine point seven six percent of the recovery right that's what would happen that's what goes on so what are we really talking about here we're really talking about a falling out between physics and mcquarrie when it was everybody's on the same page on deal day certificate of incorporation seemed like a wonderful idea and that's what we did it seem like a wonderful idea because we felt like we could trust one another i want to say to you if there's no listen i'm go put this fifteen million in and i'm going to be in with you all the way profits and losses distributions and so forth and so on and but i'll tell you what i don't want you bankrupting the company out from under me lexington groupon another case it is not to say that members of a business entity cannot freely agree among themselves not to file bankruptcy and quot an agreement forced on members by a creditor soley for its own interest is distinguishable from an agreement among the sole issue is whether the bankruptcy were strictures were imposed by p g p c g as a creditor to create an absolute waiver the court went on to find that's exactly what happened in your strictures in that case reported in that were necessary part of the loan and so forth i see my time has expired but that if you have any questions for the questions for me i'm happy to respond thank you thank you lexington hospitality case which counsel has just read to the fort from is the best case in our favor in that case the creditor healthy thirty percent stock interest and was not allowed to exercise a blocking right absented themselves we took the position they were allowed to do to and they all agree they didn't come up with any plan to help the corporation they didn't say we're going to loan you money so you can sue us they didn't say we've got to go talk to secure creditors which don't really exist and with respect to this business about the insider sale that is exactly why we need microsleep the best way to hold this sale is in bankruptcy court where everything's out everything's on the take the bankruptcy judge make sure it's fair they raise some business about this employment contract if there's some problem with the contract the bankruptcy judge can deal with it but we can't deal with if we don't interests of the corporation on page seventeen of their review they say that their shareholder rights should be recognized so they can act in the best interests of the corporation the by proxy course if this deal was designed in the best interests of the corporation if that is true then it is only fair to ask them to act like a shareholder in the best interests of the corporation and do that as a matter of federal law to ensure the uniformity that the constitution says federal it is no it is not contrary to that case the alleged cases refinement which says you go to a particular transaction and delaware law judge k we have sided with the girl while a case which is under delaware law when the corporation is in saw a duty it's owed to all predators and it is the duty to all creditors to protect the interests of everybody who had and community of interest in this corporation to maximize the value of the corporation not minimize it that's why we're here today we asked the court to reverse the judge dismissing the bankruptcy and allow those on remained to proceed in bankruptcy any question they want to raise about the sale at that time they are f if they can figure out a way to get more money than they could go to take the matter under advisement called the next