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).

However, in Mallinckrodt PLC's Chapter 11 cases, a shareholder pursued a campaign for equity recoveries, including an attempt to call a special shareholder meeting to elect new, more shareholder-friendly directors. See Mallinckrodt PLC v. The Buxton Helmsley Group (In re Mallinckrodt PLC) Adv. No. 21-50242-JTD, (Bankr. D. Del. March 12, 2021). The debtors successfully blocked this attempt by obtaining a temporary restraining order (TRO) from the bankruptcy court, and subsequently the shareholder agreed to a preliminary injunction barring further efforts to call a special shareholder meeting.