On June 11, 2026, the United States Supreme Court issued a significant decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, holding 6-3 that Section 47(b) of the Investment Company Act does not impliedly authorize private parties to sue for rescission of contracts alleged to violate the Act. Justice Barrett delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Thomas, Alito, Gorsuch, and Kavanaugh. Justices Kagan and Jackson dissented.
The decision resolves a long-standing question regarding the availability of private enforcement under Section 47(b), a provision that has served as a key litigation tool for activist investors and other shareholders seeking to unwind agreements entered into by registered investment companies. By rejecting an implied private right of action, the Court has materially reshaped the enforcement landscape under the Investment Company Act, channeling rescission-based challenges toward the Securities and Exchange Commission rather than private litigants.
For closed-end fund sponsors and their boards, the ruling provides meaningful protection against activist campaigns that have increasingly leveraged Section 47(b) to attack bylaws, control share provisions, and other governance arrangements. Fund managers should expect a recalibration of activist tactics, with greater emphasis on proxy contests, shareholder proposals, public advocacy, and engagement with regulators in lieu of direct rescission litigation. Existing contracts previously vulnerable to private challenge under Section 47(b) now enjoy a more stable legal footing, although they remain subject to potential SEC enforcement.
Activist investors, institutional shareholders, and counterparties to fund-related agreements should promptly reassess pending and contemplated disputes involving alleged Investment Company Act violations. Strategies built around the threat or pursuit of Section 47(b) rescission claims will need to be restructured, and pleadings in active matters should be reviewed to determine whether alternative theories remain viable. Engagement with the SEC may take on heightened importance, as regulatory action becomes the primary avenue for unwinding contracts that allegedly violate the Act.
The decision also invites broader reflection on the scope of implied private rights of action under the federal securities laws, a doctrine the Court has continued to narrow in recent terms.
Clients with matters potentially affected by this decision should consult counsel for advice tailored to their specific circumstances.