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."
The court reaffirmed a critical point: bankruptcy stays shield the debtor entity, but not the individuals behind the entity. Unless there is some specific instruction, board members can still be sued in their individual capacity, even when their conduct is deeply entangled with the company's financial distress. Justice Chan found that the intentional manipulation of a valuation process to harm a departing executive was a standalone separate claim, which could proceed by itself, holding that "plaintiffs sufficiently allege that the individual defendants engaged in personal wrongful actions that give rise to fiduciary duty breaches." Justice Chan emphasized that the claims were proper under New York and Delaware law because they were grounded "in allegations of personal misconduct, not merely the individual defendants' status as members."
Strategic Implications
Corporate defendants, and their counsel, should not rely on a company's bankruptcy as a shield for individual conduct of their board members. And plaintiffs asserting equity-related claims should consider whether alleged board misconduct opens a fiduciary pathway, particularly where valuation or vesting issues intersect with termination events.
Conclusion
Ragab is a reminder that Commercial Division judges will look closely at director conduct, even post-termination and post-bankruptcy. For litigators navigating high-stakes exits or disputes over equity entitlement, this decision offers both warning signs and strategic pathways to success.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
