The Enforceability of Ipso Facto Provisions in a Dismissed Chapter 11 Case

December 06, 2017

Section 365 of the U.S. Bankruptcy Code does not address the legal status of an
executory contract that is not assumed or rejected in a chapter 11 proceeding.
In such cases where a chapter 11 plan is confirmed, courts adopt the ride
through doctrine as a judge-made solution. Pursuant the doctrine, such contract
rides through unaffected by the bankruptcy case and remains an enforceable
contract among the reorganized debtor and the non-debtor counterparty.

The status of ipso facto clauses in a dismissed case appears to be a question of
first impression. One scenario involving these questions has been addressed
recently by the Connecticut Supreme Court in CCT
Communications, Inc. v. Zone Telecom, Inc
., Case No. SC 19574, Nov.
21, 2017. In reversing the lower court, the Court held that (i) the ride
through doctrine does not apply to dismissed cases and (ii) the ipso facto
prohibition retains its vitality even if the case is dismissed, such that a
post-petition notice of termination had no force and effect.

Read "The Enforceability of Ipso Facto Provisions in a Dismissed Chapter 11 Case."