Second Circuit Extends Reach of Section 546(e) to Redemption of Commercial Paper

July 07, 2011
The Bankruptcy Code generally allows trustees and debtors-in-possession to seek to avoid and recover fraudulent and preferential transfers made prior to bankruptcy. One exception is found in Section 546(e), which provides that securities-related “settlement payments” made to or from certain parties are not subject to avoidance unless those payments were made with actual intent to defraud, hinder or delay creditors. A recent Second Circuit opinion read the term “settlement payments” to include the redemption of commercial paper by its issuer. This update examines the decision in Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V. and the implications of expanding Section 546(e) to encompass the redemption of commercial paper.