On June 11, 2026, the U.S. Supreme Court issued its decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., holding that Section 47(b)[1] of the Investment Company Act of 1940 does not empower private parties to sue for rescission of any contract that allegedly violates the Investment Company Act. The decision reversed the prior ruling of the U.S. Court of Appeals for the Second Circuit and resolved a circuit split created by the Second Circuit in 2019 in Oxford University Bank v. Lansuppe Feeder, LLC, in which it recognized a private right of action under Section 47(b), deviating from decisions by the Third and Ninth Circuits, which did not recognize such a right. The Supreme Court’s decision is a significant result for registered funds and business development companies (BDCs) as it eliminates a statutory mechanism used to challenge anti-takeover measures adopted by closed-end funds and BDCs and provides greater regulatory certainty by maintaining the SEC’s near-exclusive authority to enforce the Investment Company Act.
FS Credit Opportunities Corp. involves closed-end funds registered under the Investment Company Act and organized under Maryland law. As an anti-takeover measure, each fund’s board adopted resolutions opting into the Maryland Control Share Acquisition Act (MCSAA), thereby limiting the ability of fund shareholders to vote their shares to the extent their ownership of fund shares exceeded a certain threshold. In June 2023, Saba, an activist investor in the funds, sued the funds in the U.S. District Court for the Southern District of New York, seeking rescission of the control share resolutions pursuant to Section 47(b). Saba alleged that in opting into the MCSAA, the funds violated Section 18(i) of the Investment Company Act, which provides that “every share of stock…issued by a registered management company…shall be a voting stock and have equal voting rights with every other outstanding voting stock….” The District Court, citing Oxford University Bank, granted summary judgment in favor of Saba and ordered the rescission of the control share resolutions. On appeal, the Second Circuit affirmed the decision of the District Court. In June 2025, the Supreme Court granted certiorari to resolve the circuit split.
In considering the text of Section 47(b), the Supreme Court observed that, with respect to contracts made in violation of the Investment Company Act that have already been performed, Section 47(b) instructs that “a court may not deny rescission at the instance of any party….” Rather than create a private right to sue, the Court noted that “Section 47(b)’s wording presupposes that parties are already before the court and directs the court’s use of its remedial authority….” The Court highlighted that, while common law generally makes it difficult to obtain rescission of a contract already performed, Section 47(b) overrides this default and “unlocks remedies that would otherwise be unavailable.” The Court also observed that the statutory structure of the Investment Company Act supports the same conclusion. The Court noted in particular that Congress gave the SEC significant authority to enforce the Investment Company Act, supporting the conclusion that “private parties generally cannot enforce the Investment Company Act,” and that Congress also expressly authorized two private rights of action elsewhere in the Act, demonstrating that when Congress wished to grant a private right of action, “it knew how to do so and did so expressly.”
The Supreme Court’s opinion was issued under the caption FS Credit Opportunities Corp. et al. v. Saba Capital Master Fund, Ltd. et al., No. 24-345 and is available here.
[1] In relevant part, Section 47(b) provides that: “(1) A contract that is made, or whose performance involves, a violation of [the Investment Company Act]… is unenforceable by either party…(2) To the extent that a contract described in paragraph (1) has been performed, a court may not deny rescission at the instance of any party unless such court finds that under the circumstances the denial of rescission would produce a more equitable result than its grant and would not be inconsistent with the purposes of [the Investment Company Act].”
