On June 11, 2026, the Supreme Court handed closed-end funds a significant victory over activist investor Saba Capital. In FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, 608 U.S. ___ (June 11, 2026), the Court held that Section 47(b) of the Investment Company Act (“ICA”) does not create an implied private right of action to seek rescission of contracts that allegedly violate the Act.
The decision removes a potentially powerful litigation tool for challenging fund governance measures, including control-share provisions and other mechanisms designed to limit the influence of concentrated shareholders. Going forward, private litigants can no longer rely on Section 47(b) itself as a vehicle to unwind transactions, governance arrangements, or other actions on the theory that they violate the ICA.
The dispute arose from a familiar activist-investor strategy. Saba Capital acquired significant positions in several closed-end funds and challenged the funds’ decisions to opt into provisions of Maryland’s Control Share Acquisition Act, which limits the voting rights of shareholders who acquire significant ownership positions unless the remaining shareholders approve. Saba alleged that those provisions violated Section 18(i) of the ICA, which requires that every share be a voting stock with equal voting rights.
To obtain relief, Saba relied on Section 47(b), which provides that when a contract has been performed, “a court may not deny rescission at the instance of any party” unless equitable considerations counsel otherwise. The District Court and the Second Circuit accepted Saba’s theory based on the Second Circuit’s earlier decision in Oxford University Bank v. Lansuppe Feeder, LLC, 933 F.3d 99 (2d Cir. 2019), which held that Section 47(b) implicitly authorizes private parties to sue for rescission. The Supreme Court disagreed.
Writing for a six-Justice majority, Justice Barrett concluded that Section 47(b) is directed at courts and remedies, not private litigants and causes of action. In the Court’s view, the provision governs what relief a court may award once a case is properly before it; it does not answer the separate question of who may sue in the first place.
That distinction drove much of the Court’s analysis. The majority repeatedly emphasized that rescission is a remedy, not a cause of action. Section 47(b), the Court explained, may expand the circumstances in which rescission is available, but it does not itself create a right to bring suit. The reasoning will sound familiar to Delaware practitioners. Delaware courts have long treated rescission as a form of relief that must be tethered to an underlying claim—whether for fraud, breach of fiduciary duty, mistake, or breach of contract—rather than as a standalone cause of action, and have recognized that rescission belongs in the prayer for relief rather than as a separate claim.[1] The Supreme Court effectively imported that same distinction into the federal securities-law context, viewing Section 47(b) as a remedial provision rather than an independent source of private enforcement.
Justice Jackson dissented, joined by Justice Sotomayor and, in part, by Justice Kagan. The dissent grounded its analysis in the Supreme Court’s ruling in Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (1979). There, the Court recognized an implied private right of action under Section 215 of the Investment Advisers Act, which provided that a violative contract “shall be void”—language that at the time mirrored Section 47(b) of the ICA. In the dissent’s view, Congress’s 1980 amendment to Section 47(b), which deleted the original “shall be void” language and added the phrase “rescission at the instance of any party,” preserved rather than eliminated that implied right of action.
The majority found the dissent’s reasoning unpersuasive, invoking the principle that changed language typically indicates changed meaning. The 1980 amendment, in the majority’s view, shifted Section 47(b)’s focus to regulating a court’s remedial authority, and Congress’s decision to amend that provision while leaving Section 215 of the Investment Advisers Act intact confirmed that the two provisions no longer carried the same meaning.
The decision’s significance extends well beyond the control-share provisions at issue in FS Credit. Activist campaigns against closed-end funds frequently seek to force liquidity events, tender offers, open-end conversions, board turnover, and other structural changes. Although pursued by a relatively small group of specialized investors, these campaigns have become a recurring feature of the closed-end fund landscape. Academic research has found that activist investors frequently target discounted closed-end funds in an effort to force open-ending transactions and other liquidity events, and that a fund’s governance structure can significantly affect its vulnerability to such campaigns.[2]
Saba has been among the most active proponents of these campaigns. As one recent court observed, Saba focuses on discounted closed-end funds and has pursued activist strategies that include accumulating significant ownership positions, nominating directors, advocating changes to fund management, and challenging defensive measures adopted by fund boards.[3] Saba also enjoyed notable success using Section 47(b) to challenge fund governance measures, most prominently in Saba Capital CEF Opportunities 1, Ltd. v. Nuveen Floating Rate Income Fund, where the Second Circuit held that certain control-share provisions violated the ICA and ordered rescission.[4]
By rejecting Saba’s theory, the Court foreclosed what could have become a broad mechanism for transforming alleged ICA violations into private rescission actions under Section 47(b), with implications well beyond the parties to the dispute. As a result:
- Closed-end funds face materially reduced litigation risk under Section 47(b).
- Boards considering control-share statutes and similar governance protections gain greater certainty that those measures cannot be unwound through investor-initiated rescission suits under the ICA.
- Activist investors will need to rely on other theories—including express ICA causes of action, state-law claims, or SEC involvement—rather than Section 47(b) itself.
- The SEC, rather than private litigants, remains the primary enforcer of the ICA’s substantive provisions.
In short, the decision removes a significant source of leverage from the activist toolkit.
The decision does not eliminate private enforcement under the ICA. The statute’s express causes of action remain intact, and activist investors will undoubtedly continue to challenge fund governance measures through other avenues. But FS Credit significantly narrows the available playbook. The immediate beneficiaries are closed-end funds and their boards, particularly those that have adopted—or are considering adopting—control-share provisions and other anti-activist measures. More broadly, the decision continues the Supreme Court’s long-running trend of limiting implied rights of action and insisting that Congress, not the courts, decides who may enforce federal statutes.
For activist investors, the path forward remains open—but a significant avenue for challenging closed-end fund governance measures is now off the table.[5]
[1] See, e.g., Eni Holdings, LLC v. KBR Grp. Holdings, LLC, 2013 WL 6186326, at *24 (Del. Ch. Nov. 27, 2013) (“Rescission is not a cause of action but a remedy available only where facts indicate equity so requires.”); Deutsche Bank Nat’l Tr. Co. v. Goldfeder, 2014 WL 7692441, at *1 (Del. Super. Ct. Dec. 9, 2014)(“[R]escission is itself a remedy, not a cause of action.”).
[2] Michael Bradley et al., Activist Arbitrage: A Study of Open-Ending Attempts of Closed-End Funds, 95 J. Fin. Econ. 1 (2010).
[3] Saba Cap. Master Fund, Ltd. v. ASA Gold & Precious Metals, LTD., 2025 WL 951049 (S.D.N.Y. Mar. 28, 2025).
[4] 88 F.4th 103 (2d Cir. 2023).
[5] The views expressed in this article are those of the authors and do not necessarily reflect the views of Elsberg Baker & Maruri PLLC or its clients. This article is for general informational purposes only and does not constitute legal advice.
