The Bankruptcy Deadline Checklist is a quick reference guide for those who handle bankruptcy cases including judges, lawyers, paralegals, credit managers, collection agents, professors, law students, and others.

In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate.

At its heart, Episode 24 was about relationships – from the wayward dating lives of Richard and Dinesh to Big Head and Ehrlich’s marriage of “Bachmanity,” the Pied Piper entourage found themselves faced with the messy unraveling of unsuccessful relationships.

One goal of bankruptcy for individuals is the discharge of debts, meaning that, upon the successful completion of their bankruptcy case, the debtor is no longer personally responsible for the obligations owed prior to the bankruptcy filing. There are certain exceptions to the discharge that apply to particular debts, generally for obligations on debts that are either preferred (such as certain taxes or support obligations) or debts that were incurred under circumstances perceived as bad acts (such as willful and malicious injury or fraud).

A recent case out of the Southern District of New York, Citibank, NA, London Branch v. Norske Skogindustrier ASA(S.D.N.Y. March 8, 2016), once again illustrates the difficulty of obtaining injunctive relief against prospective indenture violations of a financially troubled issuer.

The Facts

With the current interest being focused on Section 316(b) of the Trust Indenture Act, this may be a good time to examine the differing rights of noteholders under an indenture governed by the TIA and the rights of lenders under credit agreements governed by New York law.

One of the more appealing aspects of the U.S. bankruptcy process is the relative ease in which parties in interest may file proofs of claim. In years passed all it took was to mail in a simple form to the bankruptcy court or claims agent and now it is even easier with the advent of email and electronic claims uploading. This relatively easy process, however, often comes with a plethora of invalid or unenforceable proofs of claim.

A contractual waiver of an entity’s right to file for bankruptcy is generally invalid as a matter of public policy. Nonetheless, lenders sometimes attempt to prevent a borrower from seeking bankruptcy protection by conditioning financing on a covenant, bylaw, or corporate charter provision that restricts the power of the borrower’s governing body to authorize such a filing. One such restriction—a lender-designated “special member” with the power to block a bankruptcy filing—was recently invalidated by the court in In re Lake Mich.

Essentially all securitization structures utilize a bankruptcy remote entity, a/k/a special purpose entity (“SPE”), to reduce the lenders’ or investors’ exposure to a bankruptcy of the sponsor. A standard feature of SPEs is the appointment of an independent person (director, member, manager) to the body managing the SPEs. That independent person’s consent is required for “major decisions,” one of which is the filing of, or consenting to a bankruptcy of the SPE (hence the court’s reference to them as “blocking directors”).

Even before Congress added section 365(c)(3) to the Bankruptcy Code in 1984, it was generally understood that a nonresidential real property lease which has been validly terminated under applicable law prior to a bankruptcy filing by the debtor-former tenant cannot be assumed or assigned in bankruptcy. Moreover, the terminated leasehold interest is excluded from the debtor’s bankruptcy estate, and any action by the landlord to obtain possession of the formerly leased premises is not prohibited by the automatic stay.