Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

The Bankruptcy StrategistLJN NewslettersNewsSections

Defending the Preference and Fraudulent Transfer Safe Harbor

By Michael L. Cook
February 23, 2010

The Bankruptcy Code (“Code”) has at least nine so-called “safe harbor” (i.e., bankruptcy insulating) provisions for financial contracts. See, e.g., ” 555 (securities contracts); ' 556 (commodities and forward contracts); ' 559 (repurchase agreements); ' 560 (swap agreements); ' 561 (master netting agreements); ' 546(e) (settlement payments); ' 548(d)(2)(b) (fraudulent transfers); and ” 362 and 553 (setoffs). Added incrementally by Congress between 1982 and 2005, with a technical amendment in 2006, these provisions essentially: 1) immunize nondebtor parties from the automatic stay as it applies to the termination of contracts; 2) permit nondebtor parties to enforce ipso facto termination provisions; 3) immunize nondebtor parties from avoidance actions (e.g., preferences, fraudulent transfers); and 4) immunize nondebtor parties from the automatic stay as it applies to the setoff of mutual debts. As shown below, some lower courts have inconsistently enforced those safe harbor provisions in the preference and fraudulent transfer context, generating costly litigation for the asserted cause of creditor recovery.

The Needless Litigation Problem

This premium content is locked for LJN Newsletters subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
The DOJ's Corporate Enforcement Policy: One Year Later Image

The DOJ's Criminal Division issued three declinations since the issuance of the revised CEP a year ago. Review of these cases gives insight into DOJ's implementation of the new policy in practice.

The DOJ's New Parameters for Evaluating Corporate Compliance Programs Image

The parameters set forth in the DOJ's memorandum have implications not only for the government's evaluation of compliance programs in the context of criminal charging decisions, but also for how defense counsel structure their conference-room advocacy seeking declinations or lesser sanctions in both criminal and civil investigations.

Use of Deferred Prosecution Agreements In White Collar Investigations Image

This article discusses the practical and policy reasons for the use of DPAs and NPAs in white-collar criminal investigations, and considers the NDAA's new reporting provision and its relationship with other efforts to enhance transparency in DOJ decision-making.

Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

Compliance Officers: Recent Regulatory Guidance and Enforcement Actions and Mitigating the Risk of Personal Liability Image

This article explores legal developments over the past year that may impact compliance officer personal liability.