Bankruptcy Court Turns Down Attempt to Circumvent CDO Liquidation Procedure In a recent decision that will be of interest to capital and structured finance market participants, 1 a bankruptcy court in the Southern District of New York found that nonrecourse noteholders of a structured finance vehicle were not eligible petitioners under § 303(b) of the Bankruptcy Code and therefore could not commence an involuntary bankruptcy case. In fact, the court dismissed the petition sua sponte, pursuant to a recent decision of the Second Circuit holding that bankruptcy courts may dismiss involuntary cases if they constitute inappropriate uses of the Code. The decision is noteworthy for its invocation of a bankruptcy court's authority to act as gatekeeper for involuntary bankruptcy petitions that threaten to undermine bargained-for liquidation procedures. Background In August 2009, an event of default occurred on the Taberna Preferred Funding IV CDO (Taberna) following a payment default on Taberna's Class B Notes.