Bankruptcy Court Casts Cloud of Uncertainty Over Treatment of Executory Contracts and Swaps

March 03, 2010
A recent decision by the Bankruptcy Court for the Southern District of New York in the Lehman Brothers case extends the unenforceability of ipso facto clauses to a provision triggered by the bankruptcy filing of an affiliate of a contractual party. This update examines the decision, which could have significant implications for executory contracts in general, treatment of derivative instruments in bankruptcy, and rights of parties to synthetic notes of the kind involved in the decision.