Model NOL Bankruptcy Court Order Released

The Model NOL Order was developed as a joint effort of The Bond Market Association and the Loan Syndications and Trading Association. The project was motivated by the disruptions to the debt-trading markets that have been increasingly caused by restrictive NOL orders entered by bankruptcy courts at the request of debtor corporations in large chapter 11 cases. The intent of these orders has been to protect the debtors’ ability to utilize net operating loss (NOL) carryovers to offset future tax liability. In many instances, however, the effect of the orders has been to halt or seriously restrict trading in the corporations’ debt, and to require investors to expend significant time in an effort to understand and negotiate the scope of the restrictions.

The goal of the Model NOL Order is to reduce the disruption and expense resulting from NOL orders by creating a standard and less restrictive mechanism for dealing with the tax issues raised by debt trading during a bankruptcy. In producing the Model NOL Order, The Bond Market Association and the Loan Syndications and Trading Association consulted extensively with representatives of the debt-trading community, as well as leading bankruptcy counsel for both debtors and creditors. The objective was to create a Model NOL Order that strikes an appropriate balance between the interests of the markets and the interest in maximizing the value of the bankruptcy estate for the benefit of all parties. In particular, the Model NOL Order has been designed to put sufficient trading restrictions in place to achieve a reasonable degree of protection for a debtor corporation’s NOL carryovers, while at the same time avoiding unnecessary disruptions to trading markets.

Full text of the Model NOL Order.

For further information regarding the Model NOL Order contact Michele David, Assistant General Counsel, The Bond Market Association, mdavid@bondmarkets.com; Jane Summers, General Counsel, Loan Syndications and Trading Association, jsummers@lsta.org; or James Bromley, Cleary, Gottlieb, Steen & Hamilton, jbromley@cgsh.com.