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BankruptcyFeaturesEmployment LawLitigationThe Bankruptcy Strategist

Bankruptcy Court Authorizes Rejection of Employment Separation Agreements

By Francis J. Lawall and Michael J. Custer

The Bankruptcy Code can be an effective tool for reducing liabilities and enhancing asset value for the benefit of creditors. One of the more important tools is the right not only to assume favorable contracts pursuant to Section 365, but also to reject those that are not. Section 365 allows a debtor to pick and choose those agreements that it believes provide the best opportunity to reorganize or alternatively, sell its assets. However, any agreement subject to assumption or rejection must be executory, i.e., both parties must have material unperformed obligations on the date of the bankruptcy filing.

A recent decision from the U.S. Bankruptcy Court for the District of Delaware, which found two pre-petition employment separation agreements to be executory and subject to rejection, serves as a useful reminder to practitioners of this threshold requirement about the need to carefully identify and provide evidence of the ongoing obligations, or lack thereof, under any pre-petition contract. In re Rupari Holding, 2017 Bankr. LEXIS 4095 (Bankr. D. Del. Nov. 28, 2017).

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