Page 11 - US Bankruptcy Code Overview

• Intent to hinder, delay or defraud transfers of estate property within one year of filing date or after the filing;
• Debtor concealed, destroyed, mutilated, falsified, or failed to keep or preserve records, unless justified.
> EXECUTORY CONTRACTS What is an “Executory Contract”?
- No statutory definition of “executory,” but cases follow the so-called “Countryman Test”
- “A contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other.” V. Countryman, Executory Contracts in Bankruptcy, 57 Minn. L. Rev. 439, 460 (1973).
Upon a bankruptcy filing:
- the debtor may assume, reject, or assume & assign most of its executory contracts. 11 U.S.C. § 365(a).
- non-debtor counterparty must generally continue to perform.
Ipso Facto Clauses
- Contract provisions that modify or terminate rights based on a bankruptcy filing or insolvency. - Such clauses are generally not enforceable. 11 U.S.C. § 365(e)(1).
Timing of Decision
- Chapter 11: Debtors must assume or reject contracts by confirmation of a plan, except non-residential real property leases and aircraft leases. Otherwise, such contracts are deemed rejected. 11 U.S.C. § 365(d).
- Chapter 7: Trustee must assume or reject any contracts within 60 days after the order for relief, unless the Court, within the 60-day period, grants additional time. If the trustee fails to act, the contracts are deemed rejected. 11 U.S.C. § 365(d)(1).
Assumption
- To assume a contract, a debtor must:
1. 2.
cure (or provide adequate assurance that it will promptly cure) any monetary default;
compensate (or provide adequate assurance that it will promptly compensate) the non-debtor counterparty for any damages resulting from the default; and
3.
- Contract must be assumed as a whole - no “cherry-picking.”
provide adequate assurance of future performance. 11 U.S.C. § 365(b).
8 | UNITED STATES BANKRUPTCY CODE OVERVIEW <