In a recent decision from the Manhattan County Commercial Division, Justice Margaret A. Chan addressed a confluence of corporate-governance, fiduciary-duty, and bankruptcy-stay issues in Ragab v. SHR Capital Partners LLC. The ruling offers instructive guidance on two legal themes; the limits of the automatic bankruptcy stay in litigation, and the viability of fiduciary-duty claims against individual directors.   

Background

Hassan Ragab, founder and former CEO of SHR Capital Partners (“SHR”) filed suit against SHR and its board members, alleging that after his termination, they manipulated the valuation process to prevent his equity from vesting, among other things. According to the Plaintiff, this was not just a matter of contract but also a clear fiduciary-duty claim based on bad faith. SHR filed for bankruptcy during litigation, which complicated matters, but Hassan wished to proceed with claims against the individual board members.

Justice Margaret Chan’s March 2025 ruling allowed the litigation to proceed against the individual directors. This offers an important message for commercial litigators: bankruptcy won’t save your directors, and equity-based disputes may survive as fiduciary-duty claims when driven by alleged bad faith.

Key Takeaways for Practitioners – No Shield for Individual Board Members

Justice Chan disagreed with SHR’s claim that the bankruptcy stay protected the individual defendants, stating that the stay “applies only to SHR and does not extend to the individual defendants, who are not debtors in the bankruptcy proceeding. Because plaintiffs’ claims against the individual defendants do not involve SHR’s property or seek to impose liability on the debtor, the stay does not bar the proposed amendments.” Continue Reading Bankruptcy, Board Conduct, and Fiduciary Duty: Key Takeaways from Ragab v. SHR Capital Partners LLC