Second Circuit Affirms Enforceability of Swaps’ Flip Provisions
by | posted in: Bankruptcy Administration and Jurisdiction, Bankruptcy Roundtable Updates, Cramdown and Priority, Derivatives, fraudulent transfer, Preference | 0

By Shmuel Vasser (Dechert)

Shmuel Vasser

Swaps, like other financial contracts (repurchase agreements, securities contracts, commodities contracts, forward agreements and master netting agreements), receive special treatment under the Bankruptcy Code.  Their acceleration, liquidation and termination is not prohibited as an ipso facto clause and the exercise of setoff rights is not subject to the automatic stay.  Transfers made in connection with these contracts are also exempt from avoidance as preferences and constructive fraudulent transfers as well as actual fraudulent transfer under state law.  But their scope is not always free from doubt.  Are provisions that modify the debtor’s priority of payment upon bankruptcy protected as well?  Are provisions that the swap incorporates by reference protected?  Must the swap counterparty itself exercise the right to liquidate, terminate and accelerate the swap?  The Second Circuit just answered these questions.

The full article is available here.

Do Bankruptcy Courts Have Constitutional Authority to Approve Nonconsensual, Third-Party Releases?
by | posted in: Bankruptcy Roundtable Updates, Supreme Court, Third-Party Releases | 0

By Shmuel Vasser and Cara Kaplan (Dechert)

Shmuel Vasser
Cara Kaplan

The Third Circuit, applying the Supreme Court’s decision in Stern v. Marshall, recently held that the Bankruptcy Court has the authority to confirm a chapter 11 plan containing nonconsensual, third-party releases when such releases are integral to the debtor’s successful reorganization.

In Stern, the Supreme Court examined the scope of the bankruptcy court’s constitutional authority and found, among other things, that the bankruptcy court can resolve a matter that is integral to the restructuring of the debtor-creditor relationship.  Analyzing Stern, the Third Circuit in In re Millennium held that the Bankruptcy Court could confirm a plan that included non-consensual, third party releases because the releases were the result of “highly adversarial” and “extremely complicated” negotiations and without the releases, the debtor would not have been able to successfully reorganize.

The full article is available here.