The decision provides guidance on the limits of housing-based objections and clarifies how bankruptcy courts may apply the “adequate assurance of future performance” standard to large, distressed residential portfolios.

Recently, the U.S. Bankruptcy Court for the Southern District of New York confirmed the Chapter 11 plan of liquidation for Broadway Realty I Co. LLC and affiliated debtors and approved the sale of a large portfolio of rent-stabilized residential properties to Summit Gold Inc. overruling objections by the City of New York.

The decision provides guidance on the limits of housing-based objections and clarifies how bankruptcy courts may apply the “adequate assurance of future performance” standard to large, distressed residential portfolios.

Background

The debtors filed for Chapter 11 relief in May 2025. They owned more than 80 multifamily properties across New York City, comprising over 5,000 residential units, most of which were rent-stabilized. Each debtor entity was financed by a separate nonrecourse mortgage or similar secured loan.

Many of the properties suffered from longstanding disrepair and unresolved housing code violations. Prior to the bankruptcy filings, the secured lender commenced foreclosure and/or receivership proceedings for several properties due to ongoing financial and operational distress.

After the bankruptcy filings, the debtors conducted a court-approved marketing and auction process, through which Summit emerged as the successful bidder for the properties listed. The proposed sale was incorporated into the debtors’ plan of liquidation.

Objections Based on Housing Violations

The City of New York, joined by various tenant groups, objected to plan confirmation and approval of the sale. The objections focused on the scope and severity of unresolved housing violations and challenged Summit’s ability to remediate those conditions following the sale.

The City of New York also argued that the debtors failed to satisfy Section 365(b)(1) of the Bankruptcy Code, which requires a debtor or assignee to cure defaults under executory contracts and unexpired leases or provide “adequate assurance” that such defaults will be promptly cured. The City sought additional sale conditions, including binding remediation schedules, escrows and enforcement milestones.

Bankruptcy Court’s Ruling

The court found that the debtors conducted a value-maximizing marketing and auction process, that the selection of the buyer reflected a sound exercise of business judgment, and that the plan and sale were in the best interests of creditors and other stakeholders.

While acknowledging the City’s concerns, the court emphasized that Section 365(b)(1) imposes a forward-looking standard. The relevant inquiry is whether the proposed purchaser is likely to perform its obligations going forward, not whether it guarantees immediate remediation of preexisting violations. As the court explained, “[t]he case law consistently counsels a flexible approach and a pragmatic assessment of the circumstances present and the ‘test is not one of guaranty but simply whether it appears that [underlying obligations] will be paid… .’” Opinion at 13 (citing In re Westview 74th St. Drug Corp., 59 B.R. 747, 754 (Bankr. S.D.N.Y. 1986)). The court concluded that the buyer’s remediation strategy, financial resources and operational plan, among other things, satisfied the Bankruptcy Code’s “adequate assurance of future performance” requirement.

The court rejected the City’s request to impose additional conditions on the sale, explaining that the Bankruptcy Code’s “adequate assurance” requirement operates independently of state and local regulatory regimes. Demands for such things as binding guarantees, detailed remediation milestones, escrowed reserves or accelerated timelines exceeded what the Bankruptcy Code requires and were more appropriately addressed through New York City’s regulatory enforcement powers. The court further clarified that approval of the sale does not insulate Summit from compliance with applicable state and local laws.

Ultimately, the court found that the requirements of Sections 363 and 365 were satisfied and confirmed the debtors’ plan.

Conclusion and Commentary

This decision is significant as it reinforces that bankruptcy courts apply a forward-looking statutory standard when evaluating objections grounded in regulatory or compliance concerns, and that widespread prepetition violations, standing alone, will not defeat plan confirmation or sale approval if statutory requirements are otherwise met.

For debtors and prospective purchasers, the decision emphasizes the importance of developing a credible evidentiary record demonstrating financial capacity, operational planning and regulatory awareness when acquiring distressed assets.

For lenders, the decision offers reassurance that a properly marketed transaction, supported by sound business judgment, is unlikely to be blocked by objections seeking conditions beyond those required by the Bankruptcy Code.

For governmental stakeholders and tenant advocates, the ruling highlights the limits of the bankruptcy forum as a means of imposing conditions beyond those required by the Bankruptcy Code and suggests that such concerns are more appropriately addressed through existing regulatory and enforcement mechanisms.

The ruling may also guide courts confronting similar regulatory objections in future cases involving distressed or regulated assets in other jurisdictions.

For More Information

If you have any questions about this Alert, please contact Marcus O. Colabianchi, Hunter C. Blume, any of the attorneys in our Business Reorganization and Financial Restructuring Practice Group or the attorney in the firm with whom you are regularly in contact.

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