On Oct. 7, 2015, the U.S. District Court for the Southern District of New York vacated a plan injunction that had been approved by the Bankruptcy Court in the Chapter 11 cases of LightSquared and certain of its affiliates (referred to collectively as LightSquared or the Debtors). The injunction was intended to prevent future inequitable conduct by a creditor who was affiliated with direct competitors of LightSquared and had taken actions during the bankruptcy case to impede LightSquared’s restructuring efforts to further its own affiliates’ interests. The District Court vacated the injunction, finding that although the Bankruptcy Court had jurisdiction to impose a post-effective date injunction, the injunction was impermissibly broad in scope and unsupported by the Bankruptcy Court’s specific factual findings.

Plan injunctions are an important tool in successfully implementing a reorganization strategy, but they are subject to significant limitations. As one of the few published cases to address the permissible scope of plan injunctions, LightSquared provides valuable guidance for implementing nonstandard injunctions through a Chapter 11 plan. Among other things, bankruptcy practitioners must develop and establish an evidentiary record to support the necessity of the injunction and should ensure that the language of the injunction is precisely tailored to address specific potential harms to the estates or the reorganized debtors.

Originally published in New York Law Journal on December 7, 2015.