The Peril and Promise of Preferred Stock (Part 1)(Part 2)

Ben Walther

This Article presents a comprehensive legal analysis of preferred stock in the wake of the doctrinally transformative cases of Trados (2009), LC Capital (2010), and Thoughtworks (2011). These cases mark the culmination of a long and gradual decimation of the legal rights of preferred shareholders under Delaware corporate law. Preferred stock has become less secure than ever, as opportunistic issuers have demonstrated the ability and the willingness to divert its investment value to the common equity. As a result, it is disappearing, along with its unique financial properties that help struggling firms avoid insolvency. This Article offers a novel solution to restore preferred stock to viability: a specific division of corporate control between preferred and common that will allow them to harmoniously co-exist. One central advantage of this approach is that it requires no changes in existing law to be implemented; only clever, sophisticated bargaining by each side is required.