What is an Independent Director?
Lenders may require independent personnel to serve on boards of single purpose entities (SPE's). SPE's are created to protect assets in large real estate transactions. Typically the duties of an Independent Director are defined and limited by the organizational documents of an entity as well as a separate agreement with the Independent Director.
Lenders making commercial real estate loans may require the borrower be a special purpose or bankruptcy-remote entity (SPE). For larger loans the lender may require the borrower's board include one or more independent directors.
Typically the organizational documents of the borrower entity will not permit the borrower to file a voluntary bankruptcy petition (or consent to an involuntary bankruptcy petition) without the consent of the independent director. This requirement gives the lender some comfort that a person not affiliated with owners or officers of the borrower will bring independent business judgment to the vote for or against a bankruptcy.