Who may be interested: Registered Investment Companies; Directors of Registered Investment Companies; Investment Advisers
Quick Take: On June 11, 2026, the Supreme Court issued a decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, holding that Section 47(b) of the 1940 Act does not include an implied private right action to seek rescission of contracts that allegedly violate the Act.
Section 47(b) of the 1940 Act provides that contracts made or performed in violation of the Act are generally unenforceable and authorizes rescission at the request of a party, subject to equitable considerations. Section 47(b) does not expressly grant any party a right to bring suit. Although Saba Capital Management, L.P. and its affiliates (Saba) argued that Section 47(b) impliedly permits private parties to seek rescission of contracts that allegedly violate the 1940 Act, the Court rejected that view, holding that the provision does not create an implied private right of action and distinguishing it from provisions in the Act that expressly create a private right of action.
Saba filed complaints in June 2023 targeting several closed-end funds organized under Maryland law that had adopted control share provisions that limit shareholder voting power. Saba argued that such measures violated Section 18(i) of the 1940 Act, which requires, in part, that every share of stock be voting stock and have equal voting rights with every other outstanding share of voting stock. Saba characterized the fund bylaws adopting control share provisions as contracts and sought their rescission on the basis that performance of such bylaws was in violation of Section 18(i).
The Supreme Court’s ruling held that Section 47(b) is a directive to courts regarding their remedial authority for cases already before the courts, and does not itself grant of a private right of action.
The Supreme Court opinion is available here.