70 THE US-ISRAEL | Legal Review 2025/26 Strict foreclosure may be particularly attractive when the secured creditor wishes to acquire the pledged equity directly rather than conducting a sale process. However, the consent requirement limits the availability of this remedy in adversarial situations where the debtor is unwilling to cooperate. Case Studies in Enforcement How do these remedies work in practice? Two recent cases illustrate the importance of strong documentation and the willingness of courts to enforce properly drafted pledge agreements and organizational documents. Yanai v. Keinan, No. 2584CV00565-BLS2 (Mass. Super. Ct. 2025) Yanai v. Keinan provides a compelling example of successful enforcement of voting rights under a pledge agreement. In Yanai, Scintilla Fund, L.P., an Israeli lender (“Scintilla”), made $38.2 million in loans to a Massachusetts limited liability company. The members of the borrower, who were Israeli citizens, pledged their membership interests as collateral to Scintilla. The pledge agreements provided that “upon the occurrence and during the continuance of an Event of Default ... all rights of any Pledgor to exercise or refrain from exercising the voting ... shall cease and all such rights shall thereupon become vested in [Scintilla].” After multiple defaults, Scintilla exercised its voting rights, removed the managing member, and appointed an independent replacement manager. The members of the borrower challenged these actions, seeking to bar Scintilla from exercising their voting rights. The Massachusetts court upheld Scintilla’s exercise of voting rights, concluding that Scintilla “was entirely within its rights under the Pledge Agreements” to exercise the members’ voting rights and that the pledges granted Scintilla the “sole right to exercise such voting and other consensual rights” upon an Event of Default. The court observed that “each and every action Scintilla undertook was expressly provided for within the plain language of the Pledge Agreement[s].” The court also rejected the members’ argument that the independent manager could not serve because he was not a member, noting that Massachusetts law permits non-member managers. The Yanai decision demonstrates that courts will enforce clear pledge language transferring voting rights upon default. It underscores the importance of incorporating such provisions in pledge agreements and ensuring compliance with applicable law regarding entity governance 1. In re Ashley Stewart, Inc., No. 25-23314 (Bankr. D.N.J. Dec. 23, 2025) In re Ashley Stewart, Inc. provides a complementary perspective on the importance of organizational documents. Courts evaluating disputes over corporate authority will look closely at corporate organizational documents to determine who has the power to authorize corporate actions. A well-drafted pledge agreement must work in conjunction with appropriate provisions in the company’s organizational documents in order to ensure that the secured creditor can seamlessly step into the shoes of the equity holder upon default. The organizational documents should provide for proper governance control and clearly delineate the voting rights, the mechanisms for electing or removing directors or managers, and the authority required to take significant corporate actions. In Ashley Stewart, shortly after a secured creditor conducted an Article 9 foreclosure sale of Ashley Stewart, Inc., two former board members purported to “reconstitute” the company’s board and filed a Chapter 11 bankruptcy petition. The company’s duly authorized board moved to dismiss the bankruptcy case, arguing that the petition was filed without the requisite corporate authority and that the alleged reconstitution violated the company’s bylaws and related governance documents. No unanimous consent of the board was obtained, as required for corporate actions pursuant to a New Jersey state court consent order, and the sole independent director did not authorize or receive notice of the bankruptcy filing. The court granted the motion to dismiss, finding that cause existed to dismiss the case for lack of proper corporate authorization. Strong Documentation Pays Dividends. The Yanai and Ashley Stewart decisions demonstrate how well-drafted pledge agreements and organizational documents provide the foundation for successful enforcement and powerful creditor protection. Key Rules for Secured Creditors Pledge Agreements are Valuable Tools for Secured Creditors. Equity pledges remain a cornerstone of secured lending transactions, providing creditors with 1. Chapman and Cutler LLP represented the secured lender Scintilla Fund L.P. in this matter.
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