When negotiating forbearance agreements with borrowers, lenders should consider including a pre-petition waiver of the debtor’s right to oppose a motion for relief from the automatic stay. In a recent decision, the Northern District of Georgia Bankruptcy Court found that a pre-petition waiver of the right to oppose a motion for stay relief was enforceable. A closer examination of this opinion provides guidance to lenders and secured creditors in negotiating these provisions with borrowers.
On October 28, 2019, Judge W. Homer Drake of the Northern District of Georgia Bankruptcy Court entered an order granting a bank assignee’s motion for relief from the automatic stay. In re Orchard Hill Baptist Church Inc., Chapter 11 Case No. 19-10897-WHD (Bankr. N.D. Ga. Oct. 28, 2019). In granting the creditor relief from the automatic stay, the court placed special significance on waiver language contained within a prior forbearance agreement between the parties. Specifically, the waiver provided that in the event that a petition for relief is filed by or against the debtor, the debtor would not oppose any motion filed by the lender requesting relief from the automatic stay.
In determining whether to enforce the waiver, the court considered four factors. First, the court found that the debtor, being a sophisticated borrower, agreed to the waiver language contained within the forbearance agreement and was ultimately bound by it. Second, the court found that the waiver was adequately bargained for at the time the parties entered into the forbearance agreement. Third, the court found that no other parties would be harmed by the enforcement of the waiver, as the debtor had few other creditors, all of whom had been silent in the case. Finally, the court found that the debtor’s proposed plan was not financially feasible, as the debtor still had made no payments on its debt and failed to show how it would be able to fund its plan. Based on these factors, the court concluded that the waiver was enforceable.
Importantly, the court noted that the existence of such language does not automatically entitle a secured creditor to relief from the automatic stay. Instead, it only entitles the secured creditor the right to seek relief from the automatic stay free of any opposition by the debtor. The existence of the waiver does not constitute cause for relief in and of itself.
This important decision provides guidance to secured creditors and lenders when negotiating forbearance agreements with borrowers, and makes clear that provisions containing a waiver of the right to oppose a motion for relief from the automatic stay may be found enforceable under appropriate circumstances. Secured creditors and lenders are encouraged to consult with knowledgeable creditor rights attorneys when negotiating forbearance agreements with borrowers, and to consider the benefits of including a pre-petition waiver of the right to oppose the automatic stay. In the event of a bankruptcy filing, a pre-petition waiver provision can serve to minimize exposure, safeguard remedies, and maximize recoveries for secured creditors and lenders, all of which can afford greater protection to secured creditors and lenders in connection with loan transactions.