More on Bankruptcy Remoteness

More on Bankruptcy Remoteness

There have been developing for several years developments in bankruptcy remoteness, that is the structuring of various businesses so that a particular (and most unlikely) vote is required in order for a bankruptcy filing to be valid.

Most recently, in In Re Pace Industries, LLC, Case No. 20-10927 (MFW) (Bankr. D. Del.), a preferred investor objected to the bankruptcy filing, relying upon the provision added to the debtor’s organizational documents requiring the investor’s consent to any filing that might be made.  The court held “[I]t is clear that a lack of access to the Bankruptcy Code and the Bankruptcy Courts would violate the federal public policy ... to allow a debtor to file [for] bankruptcy.”

This decision has already received a good deal of commentary, including Kathryn A. Coleman et al., Blocking Use of “Blocking Rights,” Am. Bankr. Inst. J., July 2020, at 30 and Brett S. Theisen, Public Policy Favors the Constitutional Right to Bankruptcy Relief, Business Law Today (July 7, 2020).  The latter article is available AT THIS LINK.