Creditors and equity holders routinely attempt to restrict entities with whom they transact business from filing for bankruptcy protection, as bankruptcy jeopardizes the ability to fully realize on an equity interest or recover on a claim. It is well established that contractual provisions that explicitly prohibit an entity from filing for bankruptcy protection are prohibited by the public policy underlying the Bankruptcy Code, so creditors and equity holders have devised creative ways to impede entities with whom they are dealing from filing for bankruptcy without explicitly proscribing it by contract. They have turned to more indirect mechanisms, for example, where the creditor or equity holder occupies a blocking position on the board of directors or otherwise retains interests that include a veto right.
More recently devised mechanisms akin to a “golden share” have not yet faced extensive judicial scrutiny. However, in one recent decision, In re Intervention Energy Holdings, No. 16-11247, 2016 WL 3185576 (Bankr. D. Del. June 3, 2016), Judge Kevin Carey drew from existing case law on blocking directors to constrict the types of bankruptcy remote structures that could survive a challenge under the Bankruptcy Code. The decision is an important one given the prestige of the court and its role as the preeminent venue for corporate restructurings. Familiarity with the decision is assumed.
