Olshan Comments on No-Action Letter Affecting Shareholder Rights in Closed End Funds

Olshan has filed with the SEC a response to a recent “no-action” letter request by a closed-end fund, Special Opportunities Fund, Inc. (“the Fund”). The Fund has written the SEC  seeking “no-action” approval for  a series of by-law amendments which would insulate Boards of closed-end investment companies from proxy contests by shareholders. One proposed amendment, for example, would replace the traditional plurality vote at an annual meeting in a contested election of directors with the requirement that the winner receive a majority of all shares outstanding. As a practical matter, this would make director replacement by an activist all but impossible.  In a recent contest with such a provision, the challenger received approximately 70% of the votes at the annual meeting but fell short of the higher majority standard.

The Fund took the unusual step of releasing its letter to the SEC in a Form 8-K filing, thereby alerting the market to its proposals. Olshan promptly responded with a detailed letter to the SEC explaining  the impact of the proposed by-law amendments on investors and their illegality under the Investment Company Act of 1940. Olshan partners Adrienne Ward and Thomas J. Fleming worked on this submission. Olshan’ s letter is available here.