Early Redemption of Notes May Not Be Avoided in Bankruptcy

March 10, 2010
A recent federal court decision has reversed a previous bankruptcy court order and held that the section 546(e) safe harbor of the Bankruptcy code, barring the avoidance of transfers constituting settlement payments in connection with securities transactions, extends also to an issuer’s redemption of commercial paper prior to maturity. At a time when public sentiment seems to be tilting against bankruptcy safe harbors, the court in Enron held them to be expansively broad and potentially bringing within their scope transfers not generally viewed as insulated from avoidance. This article examines the court’s decision and its potential impact on the scope of safe harbors.

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