Bankruptcy remote structures are often used to protect against the impact of default under a credit facility. A common mechanism is organizational documents requiring an outside director or member's vote to authorize a bankruptcy filing.
A Cautionary Tale for Lender Overreaching into Bankruptcy Remoteness
<b><i>In re Lexington Hospitality Group, LLC</b></i><p>Bankruptcy remote structures are often used to protect against the impact of default under a credit facility. A common mechanism is organizational documents requiring an outside director or member's vote to authorize a bankruptcy filing. However, the United States Bankruptcy Court for the Eastern District of Kentucky found that such a requirement implemented at the behest of a lender, among other bankruptcy restrictions, and where there was not true independence frustrated the important federal public policy of favoring fresh starts in bankruptcy.
By
Jeffrey S. Greenberg
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