Bankruptcy Order Benefiting Borrower Does Not Affect Guarantor's Obligations

On May 30, 2024, Justice Andrew Borrok of the New York County Commercial Division issued a decision in Harlem Multifamily LLC v. Reifer, Index No. 850009/2020, holding that a bankruptcy-court order that inured to the borrower's benefit did not relieve the non-debtor guarantor of his separate obligations under two guaranties, explaining:

The First Loan Guaranty (NYSCEF Doc. No. 277) and Second Loan Guaranty (NYSCEF Doc. No. 283) in this case contain numerous provisions that make clear that the Guarantor is not entitled to any sort of off set of any kind . . . .

Further, the Guarantor waived all defenses aside from payment . . . .

The bankruptcy court cramdown to $11 million reflected in the So Ordered Bankruptcy Stipulation (the BK Stipulation; NYSCEF Doc. No. 269) does not act to offset any obligation of the Guarantor under either Guaranty because that BK Stipulation provided explicitly that any compromise in the amount of the Lender's claim would not inure to the Guarantor's benefit:

The Lender expressly reserves any and all rights to pursue any claims against any third parties, including without limitation any guarantor of the Loans. Any compromise in the amount of the Lender's claim pursuant to this Stipulation is not intended to, and shall not, inure to the benefit of any guarantor of the Loans.

(id.,§ 3[c] [emphasis added]). The BK Stipulation did not operate to increase any obligation of the Guarantor.

While a borrower that is a debtor in a bankruptcy case may obtain, through the bankruptcy process, reduced payment obligations, the same is typically not true of non-debtor guarantors--who remain liable for the full amount guaranteed. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning a guarantor's rights and obligations following a primary obligor's bankruptcy filing.