Extending Section 546(e) To Commercial Paper Redemption

July 20, 2011

The U.S. Bankruptcy Code generally allows trustees and debtors-in-possession to seek to avoid and recover fraudulent and preferential transfers made prior to bankruptcy. One of the exceptions to this general rule is found in Section 546(e) of the Bankruptcy Code.

That section provides that securities-related “settlement payments” made to or from certain parties, including financial institutions, financial participants and stockbrokers, are not subject to avoidance unless those payments were made with actual intent to defraud, hinder or delay creditors.

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