In re Lexington Hosp Sample Clauses

In re Lexington Hosp. Grp., LLC, 577 B.R. 676 (Bankr. E.D. Ky. 2017) (blocking right invalid). A lender provided the debtor limited liability company a $6.15 million loan to purchase a hotel and conference center and in return obtained a note and equity kicker in the company. The equity kicker was a 30% membership interest in the company that expired when the note was repaid. This membership interest was held by a wholly owned subsidiary of lender. As a result of this loan and equity kicker, the company’s operating agreement was amended to require approval of an independent manager and 75% of members to approve the filing of the bankruptcy petition. The independent manager was to be appointed by the lender, owes no fiduciary duties to other members or managers, and terminated upon the repayment of the loan. The lender’s 30% membership interest was a veto right due to the new 75% threshold. Later a forbearance agreement between the lender and company was reached whereby lender’s subsidiary obtained a total membership interest equaling 50%. Also, the lender obtained a direct veto right independent of its subsidiary voting rights. The Kentucky Bankruptcy Court found these bankruptcy restrictions “just another attempt to disguise” the lender’s control. Id. at 685. It found the veto unenforceable as a matter of federal law because the lender “has no restrictions and no fiduciary duties to [the corporation] that might limit self-interested decisions that ignore the best interests of the Company.” Id. at 685-86. Because the bankruptcy restrictions were void, the petition was properly authorized.
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