At SPE Independent Director, LLC, we have learned that lenders making commercial real estate loans often require that the borrower be a special purpose, bankruptcy-remote entity. For loans of $15 million or more, the lender may require that the borrower entity’s board of directors include at least one independent director. Two independent directors may be required on larger loans.
To gain the approval of the lender and its counsel, the organizational documents that govern the borrower entity will not permit the borrower to file a voluntary bankruptcy petition (or consent to an involuntary bankruptcy petition) without the affirmative vote of the independent director. The purpose of this independent director requirement is to give the lender some comfort that a person not related to or affiliated with owners and officers of the borrower entity will exercise independent business judgment in voting for or against a resolution authorizing a bankruptcy filing. This does not mean that a bankruptcy filing will never be approved by an independent director. It just means that an independent director will have performed due diligence on the issue and exercised his or her reasonable business judgment unencumbered by personal or financial relationships with such parties. The independent director therefore cannot be persuaded to vote in favor of a fraudulent bankruptcy filing.
SPE Independent Director, LLC is a nationally recognized professional service company providing independent director services to borrowers of all sizes since 2002.
