THE ACTION BY PLAINTIFF SELLER TO RECOVER ON A SECURITY INTEREST IN COLLATERAL FOR A LOAN TAKEN OUT BY THE BUYER AS CONSIDERATION FOR THE PURCHASE BARRED BY THE STANDSTILL AGREEMENT WHICH ASSIGNED PRIORITY TO TWO OTHER SECURITY INTERESTS (FIRST DEPT).

The First Department, reversing Supreme Court, in a full-fledged opinion by Justice Manzanet-Daniels, determined the language of a so-called standstill provision barred the action by plaintiff Intrepid seeking to recover a security interest in collateral for the $28.7 million loan taken out by the buyer, Selling Source, as consideration for the purchase. Plaintiff was a third priority lender and the standstill agreement provided plaintiff could not seek a remedy until payment was made to the first and second priority lenders:

… Selling Source agreed to acquire a number of Internet businesses from plaintiff Intrepid. In partial consideration, Selling Source executed a $28.7 million junior secured promissory note … . …

In connection with the transaction, the parties executed an intercreditor and subordination agreement (ICA) delineating the priority of each party’s security interest in the collateral pledged by the guarantors. Plaintiff, as the “third priority representative” of the “third priority lenders,” received third priority liens as security for the repayment of the $28.7 million note … .

The ICA contains standstill provisions that circumscribe Intrepid’s ability to exercise its remedies in the event of a default by Selling Source, providing, inter alia, that “[n]o Third Priority Lender shall commence or exercise any Remedies in respect of any default or event of default. . . until such time as the Payment-in-Full of the First Priority Obligations and Second Priority Obligations” … . * * *

This action is barred by the plain language of the standstill provision, which states that “[n]o Third Priority Lender shall commence or exercise any Remedies in respect of any default or event of default . . . until such time as the Payment-in-Full of the First Priority Obligations and Second Priority Obligations” … . Intrepid Invs., LLC v Selling Source, LLC, 2023 NY Slip Op 00396, First Dept 1-31-23

Practice Point: Here priority was assigned to those holding security interests in collateral for a loan taken out by the buyer as consideration for the purchase. The plaintiff seller was a third priority lender. The seller’s action to recover on its security interest was barred by standstill agreement which did not allow the seller to seek a remedy until the payment of the first and second priority lenders.