Ipso Facto Clauses: Not Always Unenforceable in Bankruptcy

Navigating What the Code Does and Doesn't Prohibit, Leveraging Recent Conflicting Court Rulings

Recording of a 90-minute CLE webinar with Q&A

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Conducted on Tuesday, September 17, 2013

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Course Materials

This CLE course will review the types of ipso facto clauses that fall squarely within the Code prohibition on enforceability of ipso facto clauses and those that may not be addressed in the Code. The panel will analyze the reasoning of recent court rulings that have upheld and invalidated the enforceability of ipso facto clauses.

Description

Many contracts including leases, partnership agreements, lending agreements and other financial instruments contain “ipso facto” clauses which state that a bankruptcy filing or the debtor’s insolvency constitutes a default entitling the counterparty to terminate the agreement and exercise its remedies.

Pursuant to several sections of the Bankruptcy Code, ipso facto clauses are generally not enforceable in bankruptcy. The Code also provides that the invalidation of ipso facto clauses does not apply certain non-assignable contracts and other financing instruments for the benefit of the debtor.

However, courts are not uniform in approaching bankruptcy default clauses. Some find them wholly unenforceable and others decline to enforce only if they impede the debtor’s fresh start. The GGP and American Airlines bankruptcy cases provide guidance on circumstances in which the clause might be enforced.

Listen as our authoritative panel of bankruptcy practitioners discusses ipso facto clauses that fall squarely within the Bankruptcy Code’s invalidation of ipso facto clauses, the types of clauses that may not be expressly addressed in the Code, and the reasoning and analysis of recent court cases that have considered ipso facto clauses in a variety of contexts.

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Outline

  1. Overview of Bankruptcy Code sections addressing ipso facto clauses
  2. Typical transactions where ipso facto clauses come into play
  3. Case law developments: courts invalidating all ipso facto clauses
  4. Case law developments: courts upholding ipso facto clauses

Benefits

The panel will review these and other key questions:

  • How do the Bankruptcy Code provisions address the enforceability or validity of ipso facto clauses?
  • What impact does the distinction between executory and nonexecutory contracts have on the enforceability of ipso facto clauses?
  • What analyses did the courts employ in enforcing bankruptcy default clauses in the General Growth and American Airlines bankruptcy cases?

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

Andrew C. Gold
Andrew C. Gold
Partner
Herrick Feinstein

Mr. Gold concentrates his practice in bankruptcy, out of court restructuring and bankruptcy litigation. He has...  |  Read More

David L. Lawton
David L. Lawton
Senior Associate
Bracewell & Giuliani

Mr. Lawton’s practice focuses on the representation of hedge funds, institutional investors, fund managers and...  |  Read More

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