Alerts

Bankruptcy Court Denies Lenders’ Motions to Dismiss Chapter 11 Cases of SPE Debtors

August 20, 2009

On April 16, 2009 and April 22, 2009, General Growth Properties, Inc. (“GGP”) and certain of its subsidiaries (the “Debtors”), including many subsidiaries structured as special purpose entities (the “SPE Debtors”), filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York (the “Court”). Subsequent to the Court entering orders approving first-day motions authorizing the Debtors to continue using the prepetition centralized cash management system, obtain debtor-in-possession financing and use cash collateral, certain lenders and special servicers filed motions to dismiss (the “Motions”) the Chapter 11 filings of certain SPE Debtors (the “Subject Debtors”) on the grounds that the filings were in bad faith. On Aug. 11, 2009, Judge Allan L. Gropper (“Judge Gropper”) entered a memorandum of opinion (the “Opinion”) denying the motions to dismiss, finding, in part, that the independent managers of the Subject Debtors had a prima facie duty to act in the interests of the entity and its shareholders (as opposed to the SPE lenders), and that a decision to file for Chapter 11 protection may be in good faith when based on “consideration of the interests of the group as well as the interests of the individual debtor.” Opinion at 30.