If C holds on D’s license, then termination of note/SI executory would evaporate C’s collateral… contract thus, C MAY enter into w/ licensor C agrees cure agreement … to cure D’s default in exchange for licensor NOT terminating license BUT, interpreting as written (“… § 365(c)(1) assume or … assign…”) Other courts have adopted if is actually going to assign test” DIP “actual to 3rd party, then may NOT assume… BUT, if executory contract DIP DIP is NOT going to assign, then MAY assume (despite applicable law DIP NOT allowing for substituted performance) to make loan (financial § 365(c)(2) executory contract accommodation bankruptcy) may NOT be assumed… even if C-lender contract/pre-packaged consents Timing of decision to assume/reject executory contract… In (§ 60 days Ch. 7 365(d)(1)) In (§ NO set Ch. 11 365(d)(2)) negotiating whether to assume/reject MAY DIP executory contract legitimately have NOT decided… BUT, likely stretching out Cs’ agony (force settlement)… thus, at some point, judge will lose patience … In certain commercial contexts, interim payments must be made real property during decision-making process if D-tenant is bankrupt, then increased likelihood that landlord (if NOT paid by tenant) will become bankrupt as well (i.e. default on mortgage) Post-petition defaults… may NOT be terminated by post-petition Executory contract “ipso-facto” (§ default 365(e)(1))… unless, applicable law excuses non-breaching party from accepting … substituted performance (§ 365(e)(2)) language similar to AND, § 365(e)(1) § 365(b)(2)(A)-(C)… § 365(e)(2) language similar to § 365(c)(1)… thus, MAY be terminated if default is NOT executory contract … OR, if applicable law excuses non-bankrupt from accepting substituted performance (i.e. under partnership law, if partner in limited partership becomes bankrupt, then other partners MAY dissolve partnership)
If C holds note/SI on D’s license, then termination of executory contract would evaporate C’s collateral… … thus, C MAY enter into cure agreement w/ licensor C agrees to cure D’s default in exchange for licensor NOT terminating license … BUT, interpreting § 365(c)(1) as written (“… assume or assign…”) Other courts have adopted “actual test” if DIP is actually going to assign executory contract to 3rd party, then DIP may NOT assume… BUT, if DIP is NOT going to assign, then DIP MAY assume (despite applicable law NOT allowing for substituted performance) § 365(c)(2) executory contract to make loan (financial accommodation contract/pre-packaged bankruptcy) may NOT be assumed… even if C-lender consents Timing of decision to assume/reject executory contract… In Ch. 7 (§ 365(d)(1)) 60 days In Ch. 11 (§ 365(d)(2)) NO set DIP negotiating whether to assume/reject executory contract MAY legitimately have NOT decided… BUT, likely stretching out Cs’ agony (force settlement)… … thus, at some point, judge will lose patience In certain commercial real property contexts, interim payments must be made during decision-making process if D-tenant is bankrupt, then increased likelihood that landlord (if NOT paid by tenant) will become bankrupt as well (i.e. default on mortgage) Post-petition defaults… Executory contract may NOT be terminated by post-petition “ipso-facto” default (§ 365(e)(1))… … unless, applicable law excuses non-breaching party from accepting substituted performance (§ 365(e)(2)) § 365(e)(1) language similar to § 365(b)(2)(A)-(C)… AND, § 365(e)(2) language similar to § 365(c)(1)… … thus, executory contract MAY be terminated if default is NOT OR, if applicable law excuses non-bankrupt from accepting substituted performance (i.e. under partnership law, if partner in limited partership becomes bankrupt, then other partners MAY dissolve partnership)
Bankruptcy_Schechter-Fall-2009.docx