A Win for CEFs Majority Voting Standard

In October, the Massachusetts Superior Court found that four Eaton Vance closed-end funds (CEFs) and their trustees did not strip shareholders of the right to vote by requiring the support of a majority of outstanding shares to win a contested board election. The majority rule amendment that was adopted by the fund trustees allowed incumbent directors to remain on the board if a quorum was not reached or if no candidate received a majority vote of the shares outstanding. Saba claimed the majority standard was too difficult to achieve in practice and it denied shareholders a “meaningful opportunity” to elect trustees. Saba claimed that this violated Section 18(i) of the Investment Company Act and breached the funds’ declarations of trust that grants shareholders the power to vote for the election of fund trustees and requires elections annually. According to a Ropes & Gray client alert, this decision could impose “significant limitations on activist hedge funds’ ability to challenge similar voting standards adopted by other closed-end funds.” In the summary judgment stage, the Court also found that the funds’ trustees had a legitimate reason for adopting the majority rule amendment.

Click here to read a Ropes & Gray client alert explaining the court’s ruling.