The "Blocking Vote" in Action: A Step-by-Step Scenario

A Hypothetical Scenario: Sponsor Distress vs. SPE Stability

Imagine an SPE that owns a large commercial office building. The property is performing in line with expectations, generating sufficient cash flow and remaining current on all debt obligations.

At the same time, the SPE’s parent company and the sponsors experiencing significant financial distress. As part of its broader restructuring strategy, the sponsor believes that placing the SPE into bankruptcy could provide leverage or a strategic benefit at the parent level.

How the Process Typically Unfolds

1. The Request - The sponsor, acting as managing member, calls a board meeting and proposes a resolution authorizing a voluntary bankruptcy filing for the SPE.

2. The Review - The independent director is notified and provided with materials supporting the proposed filing. After reviewing the information, the independent director notes that the SPE itself appears solvent, operationally stable, and in compliance with its financing arrangements.

3. The Fiduciary Analysis - The independent director evaluates the proposal through the lens of their fiduciary duty to the SPE. The core question is not whether the filing benefits the sponsor, but whether it is in the best interests of the SPE and its stakeholders.

   1. Based on the available facts, the independent director reasonably concludes that a bankruptcy filing could unnecessarily disrupt a functioning asset, introduce risk for the SPE’s creditors, and serve purposes unrelated to the SPE’s own financial condition.

4. The Vote - When the resolution is put to a vote, the sponsor votes in favor. The independent director votes against the filing. Because the SPE’s organizational documents require unanimous consent for a voluntary bankruptcy, the resolution does not pass. The SPE does not file.

   
   

Why Judgment Matters in the Moment

This scenario highlights why the independent director role cannot be treated as a formality. In periods of sponsor-level stress, governance decisions often arise quickly and under pressure. The effectiveness of bankruptcy-remote structuring depends on having an independent director who understands both the legal framework and the practical realities of distressed situations.

An experienced independent director is not tasked with blocking filings reflexively, nor with facilitating sponsor objectives by default. Their role is to evaluate the facts, apply their fiduciary obligations to the SPE, and exercise independent judgment based on the entity’s best interests.

Firms such as SPE Specialists focus on ensuring that independent directors are prepared for these moments, serving as a meaningful checkpoint within the capital structure and helping preserve the integrity of bankruptcy-remote entities when external pressures emerge.