A Massachusetts Bankruptcy Court’s recent appellate decision in Blumsack v. Harrington (In re Blumsack) leaves the door open for those employed in the cannabis industry to seek bankruptcy relief where certain conditions are met.

Overview

A bankruptcy court’s recent denial of a debtor’s petition for bankruptcy relief on narrow grounds casts a long shadow on the viability of bankruptcy relief for those employed in the cannabis industry. Though confining the court’s holding to this debtor’s case, the court concluded that because the debtor engaged, and intended to continue engaging, in activities that violate the Federal Controlled Substances Act, the debtor could not objectively have filed for bankruptcy or proposed a plan of reorganization in good faith, as required by Federal bankruptcy law.

The widespread reach of the coronavirus (“Covid-19”) outbreak has unfavorably impacted numerous industries all over the world and sent shock waves across the global financial markets. As the outbreak has spread globally, a growing list of some of the world’s biggest companies have started to warn markets about the adverse impact the Covid-19 outbreak will have on their results and financial condition.

Section 316(b) of the Trust Indenture Act of 1939 (“TIA”) provides that, subject to certain exceptions, the right of a holder of an indenture security to receive principal and interest payments, or to institute suit to enforce such payments after they become due, shall not be impaired or affected without such holder’s consent. Market participants had long viewed Section 316(b) of the TIA as a “boilerplate” provision, contained or incorporated by reference in most high yield indentures, that protected only a bondholder’s right to bring suit to enforce payment obligations.