Jenner & Block

"Chapter 11 Debtor Can Assign Previously Assumed Lease Despite Anti-Assignment Clause," Jenner & Block Spotlight Newsletter

By Andrew J. Olejnik and Abraham M. Salander

In In re Eastman Kodak Co., 495 B.R. 618 (Bankr. S.D.N.Y. 2013) (No. 12-10202), the Bankruptcy Court for the Southern District of New York permitted a Chapter 11 debtor-in-possession (Kodak) to assign a previously assumed real estate lease despite the lease’s anti-assignment clause.  Kodak had assumed the lease within the deadline set forth in Section 365(d)(4) of the Bankruptcy Code for unexpired leases of nonresidential real property but did not seek to assign the lease until almost a year later.  Analyzing the plain meaning of the Bankruptcy Code, the Court held that assumption and assignment are independent concepts and can take place at different times – nothing in Section 365(d)(4) imposes a deadline for assigning such a commercial lease.  Assignment is conditioned on (1) the assumption of the lease in accordance with Bankruptcy Code requirements, and (2) adequate assurance of future performance by the assignee.  Moreover, in this case, the order approving assumption of the lease specifically reserved the debtor’s right to assign the lease at a later point in time, and the landlord had not objected to the assumption order.  Finally, the Court rejected the landlord’s argument that the anti-assignment clause had to be respected because, when the debtor assumed the lease, the debtor assumed it subject to all of its terms, including the anti-assignment clause.  The Court reasoned that “the power to assign and override an anti-assignment clause is an important right that carries out one of the main purposes of Section 365 of the Bankruptcy Code—to allow debtors to maximize value for the benefit of their creditors.”