Bankruptcy 546(e) Safe Harbor Exemptions for Swaps, Securitized Loan Payments, LBO Shareholder Payments and More

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As the safe harbor provisions for financial contracts continue to be tested in bankruptcy litigation, case law is constantly evolving. Recent key cases include the U.S. Supreme Court’s denial of cert. which preserved safe harbor protection for Madoff victims. In In re Hellas Telecomms (Luxembourg) II SCA, the New York Bankruptcy Court made it easier to challenge fraudulent transfers that fall under 546(e) protection as the court articulated a relaxed pleading standard for proving actual fraud.

Cases to watch in 2016 include the Sabine Oil bankruptcy case in which the debtor asserted a claim against its second-lien lenders who are seeking to dismiss the claim on the basis that the loan payments are protected under Section 546(e). Another key case is In re MCK Millennium Centre Parking L.L.C., in which the Illinois court vacated its landmark decision regarding safe harbor protections for securitized loans.

The ABI’s Commission to Study the Reform of Chapter 11 has made several recommendations impacting Section 546(e) namely the exclusion of LBO payments to owners of privately issued securities, the revision to definitions related to repurchase agreements, and the exclusion of ordinary supply contracts with little effect on financial markets.

Listen as our authoritative panel of bankruptcy attorneys discusses the scope and limits of the safe harbors, recent case law developments, best practices for bringing or defending fraudulent transfer safe harbor claims, and the structuring of financial contracts to preserve safe harbor protections.