Bankruptcy Court Limits Applicability of Section 546(e) Securities Safe Harbor to Public Securities

May 02, 2011
The United States Bankruptcy Court for the Southern District of New York’s recent decision in In re MacMenamin’s Grill Ltd. limits the application of Section 546(e) of the Bankruptcy Code, which provides a “safe-harbor” for certain transfers involving the purchase or sale of securities and protects those transfers from avoidance as constructive fraudulent transfers or preferences, in two respects. First, the court limited the application of the safe harbor to transactions involving public securities. Second, the court held the safe harbor inapplicable to actions seeking to avoid the incurrence of loan obligations. This update examines the decision and its potential impact on transactions that could be considered to pose a risk to the public securities markets.