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Goldberg Kohn Principal <a href="https://www.goldbergkohn.com/people/randall-klein/">Randy Klein</a> is quoted in the Nov. 1, 2022, issue of Financial Times in an article titled, "Slick Lawyers Test the Limits in Distressed Debt Machinations." The article explains the effects of companies placing more restrictions on the contractual ability of minority creditors to bring an action against the majority.

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Lately, private-equity backed companies have granted special treatment to a subset of lenders without allowing all lenders to participate in the same transaction. Randy Klein has been an advocate of imposing a good faith duty when amending credit documents in a way that was not initially anticipated (read more on this topic <a href="https://www.goldbergkohn.com/news/lender-liability-management-restoration-of-the-duty-of-good-faith/">HERE</a>). A subset of the good faith argument has now emerged with majority lenders not only amending the document to give themselves preferential treatment, but also imposing new hurdles that attempt to block the minority from bringing suit, including forcing indemnification obligations, removing attorneys' fee reimbursement, and creating other procedural blocks.

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There seems to be no limit what the company and majority lenders can do when modifying documents. But recently, courts have thrown out self-dealing attempts at amending these "no action" clauses in ways that are either deemed to have been in bad faith or otherwise offensive to the reviewing court.&nbsp;

No-action clause manipulation has become a gating issue that must be addressed by the courts. Randy Klein was quoted, "if the amended docs say you must sacrifice your first born to sue the majority, is that too extreme?" The point is that there are judicial guardrails such that "no action" clause modifications cannot be made "carte blanche" as one court put it and must be held to a good faith standard.

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