There have been recent conflicting decisions in U.S. district courts of New York, Delaware, and others states regarding to the enforceability of make-whole provisions in bankruptcy. The ambiguity created by the courts’ decisions has caused uncertainty for all parties involved in these kinds of loan documents. This comment is an analysis of the enforceability of make-whole provisions in the context of bankruptcy in light of the recent decisions. In order for a makewhole or a no-call provision to be upheld, a number of hurdles must be cleared. The provisions must be valid under both state law and bankruptcy law. Make-whole provisions are generally enforceable outside of bankruptcy under state law to the extent that they are not true penalties under a liquidated damages analysis. Once bankruptcy comes into play, the provisions must withstand a number of hurdles. In order to be enforceable in bankruptcy, a make-whole provision must be a valid liquidated damages claim under state law, it must be provided for and triggered under the contractual agreement, and it must not be tantamount to unmatured interest.
Brian Patrick McBride,
Overcoming Hurdles in the Enforceability of Make-Whole Provisions,
70 U. MIA L. Rev.
Available at: https://repository.law.miami.edu/umlr/vol70/iss3/9