Richards Layton & Finger

Delaware Bankruptcy Court Announces Bright-line Rule for Use of Lock-up Agreements in Chapter 11 Cases

February 2003

The U.S. Bankruptcy Court for the District of Delaware has issued bench rulings in two recent cases, In re NII Holdings Inc. and In re Stations Holdings, which together establish a bright-line rule for the use of lock-up agreements in connection with voting on a chapter 11 plan.  Simply put, the court ruled that votes to accept a reorganization plan cast by a party that signed a lock-up agreement prior to the petition date may be counted for plan confirmation, while votes cast by parties who entered lock-up agreements post-petition and prior to the court having approved a written disclosure statement may not be counted.  In the latter cases, the court found that the post-petition lock-up agreements violated §1125(b) of the Bankruptcy Code because they amounted to post-petition solicitation of acceptances of a chapter 11 plan without a court-approved written disclosure statement having been provided in advance to the locked-up parties.