Can a Contract Block Bankruptcy? Lessons from the "Golden Share" and In re Intervention Energy

The Role of Governance in Bankruptcy Remoteness

When lenders require a bankruptcy-remote structure, the goal is to ring-fence assets and prevent an unauthorized filing. However, there is a fine line between a defensible governance structure and an unenforceable "lockout" of the courts.

The case of In re Intervention Energy Holdings provides a critical lesson for structured finance professionals on why the "how" of governance matters as much as the "what."

The Failure of the "Golden Share"

The Failure of the "Golden Share" In this case, a lender received a "golden share" during a loan workout, which was a single share of common stock. The intent was bankruptcy would require unanimous consent from all members, so they believed they had the absolute power to block any bankruptcy filing. The court struck this down, ruling it was not a legitimate governance mechanism but rather an unenforceable waiver of the right to file for bankruptcy.

The court identified two primary flaws:

• The Creditor Lockout: The structure gave a single creditor unilateral power to prevent the company from accessing the court, even if a filing was in the best interest of the entity and its other stakeholders.

• The Absence of Fiduciary Duty: Because the creditor held the share, they were expected to vote in their own interest. This lacks the objective check-and-balance required by U.S. public policy.

Building a Defensible Structure 

The failure of the golden share reinforces why the Independent Director model remains the industry standard. Unlike a creditor with a "golden share," a true independent director:

• Owes a Fiduciary Duty: They must act in the best interest of the SPE, not a specific creditor.

• Provides Material Action Oversight: Their role is to exercise independent judgment on specific "material actions" (like bankruptcy filings) as defined in the LLC Operating Agreement.

• Maintains Bankruptcy Remoteness: This structure has been consistently upheld by courts because it preserves the entity's right to file while ensuring that the decision is made through a rigorous, independent lens.

At SPE Specialists, we provide the experienced oversight necessary to protect these structures. Our directors understand their fiduciary responsibilities, ensuring your SPE remains defensible and compliant from closing through the life of the loan.