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Outlook Haggen Holdings is consistent with other rulings on the application of section 365(f)(1).The purpose of assumption and assignment of executory contracts and unexpired leases—maximization of value for the benefit of the bankruptcy estate and creditors—is a fundamental bankruptcy policy.
In so ruling, the district court agreed with the reasoning in Great Atlantic, where the district court affirmed a ruling invalidating a profit-sharing provision under section 365(f)(1) as a matter of law.
In approving the sale and the related assumption and assignment of the Lease, the court wrote that enforcing the profit-sharing provision "would defeat the purpose of section 365(f)(1), which is to . The District Court’s Ruling On appeal, Antone argued that the bankruptcy court erred by not analyzing the facts and circumstances of the case, including evidence of the bargained-for exchange of below-market rent and the profit-sharing provision.
1996); accord In re Standor Jewelers West, Inc., 129 B. The bankruptcy court overruled Antone’s objection, concluding that the profit-sharing provision was unenforceable under section 365(f)(1). enable the Debtor to realize the full value of its assets." Antone appealed the ruling.
Section 365(f)(1) and Profit-Sharing Provisions Under section 365(f)(1), with certain exceptions, a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") may assign an executory contract or an unexpired lease notwithstanding a provision in the contract or lease or in applicable law that "prohibits, restricts, or conditions" assignment. (In re Great Atlantic & Pacific Tea Co., Inc.), 2016 WL 6084012, *4 (S. The district court noted that other courts considering this issue have similarly refused to enforce profit-sharing provisions as anti-assignment provisions and that Antone failed to cite any decisions to the contrary.
The district court ruled that, in approving the sale, the bankruptcy court did not err in holding that the profit-sharing provision was unenforceable under section 365(f)(1) of the Bankruptcy Code because it conditioned assignment of the lease. For example, many courts have held that a provision in a lease obligating the lessee to share with the landlord any profits realized from assignment is an unenforceable condition which limits "the debtor’s ability to realize the full value of its leasehold interest" by requiring payment to one creditor and diminishing distributions to all other creditors. The court ruled that, as a matter of law, the profit-sharing provision in the Lease was unenforceable under section 365(f)(1).