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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). District Court for the District of Delaware considered whether, as part of a bankruptcy asset sale, a chapter 11 debtor could assume and assign a nonresidential real property lease without giving effect to a clause in the lease requiring the debtor to share 50 percent of any net profits realized upon assignment. In addition, section 365(f)(3) of the Bankruptcy Code invalidates any provision in an executory contract or unexpired lease assigned by the trustee or DIP that "terminates or modifies, or permits a party other than the debtor to terminate or modify, such contract or lease or a right or obligation under such contract or lease on account of an assignment." To be unenforceable under section 365(f)(1), a challenged provision does not have to directly prohibit assignment—indirect interference is sufficient. The court found that the provision at issue conditioned assignment because it required the Debtors to pay Antone 50 percent of net profits received if the Debtors assigned the Lease, which would result in a diminished distribution to all other creditors.

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About 1.4 million Americans consider themselves transgender, according to a 2016 analysis of federal and state data.The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion.To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at Moreover, the court noted, cases involving cross-default provisions are inapposite because they deal with provisions in one or more economically interdependent contracts, as distinguished from different provisions in a single contract.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.

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