October 20, 2015 Practice Points

Delaware Bankruptcy Court Issues Bench Ruling in In re Colt Holding Company, LLC

In denying the request for derivative standing, Judge Silverstein noted that the debtors had taken steps to ensure the independence of the lease renewal process.

By Andrew M. Dean

On October 7, 2015, Judge Laurie Selber Silverstein of the United States Bankruptcy Court for the District of Delaware issued a bench ruling in In re Colt Holding Company, LLC, No. 15-11296, denying without prejudice a motion filed by the official committee of unsecured creditors seeking derivative standing. The committee sought standing to sue the landlord of the debtors’ manufacturing facility in Connecticut in order (according to the committee) to prevent the eviction of co-debtor and tenant Colt Defense LLC upon expiration of the lease of the facility. The committee argued that conflicts of interest justified granting it derivative standing, because two members of Colt Defense LLC’s governing board were alleged to hold ownership interests in the landlord and to have been appointed to positions with both entities by the stalking horse bidder in the case. In denying the request for derivative standing, Judge Silverstein noted that the debtors had taken steps to ensure the independence of the lease renewal process. However, the court also concluded that the committee had not shown that the debtors were unjustified in failing to bring suit, given that the debtors were circulating a draft plan term sheet that would settle the causes of action and give the debtors the option to renew the lease of the facility.

Keywords: bankruptcy and insolvency litigation, automatic stay, labor law, Norris-LaGuardia Act, property of the estate

Andrew M. Dean – October 20, 2015