The Assumption Or Rejection of Executory Contracts in Bankruptcy – Are Commodity Contracts Within A Safe Harbor?

March 14, 2012 | Roger McEowen and Erika Eckley

In 2005, the Congress substantially overhauled the Bankruptcy Code (Code) with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). While the BAPCPA’s primary emphasis focused on consumer bankruptcies, the BAPCPA also has important implications for business bankruptcies. One key issue involves the impact the BAPCPA may have on certain “safe harbor” transactions, including forward contracts.  A creditor under a forward contract, like a secured creditor, receives favored treatment under the Code.  That’s an important point for any party to a forward contract, and has implications for Midwest corn farmers who entered into contracts for future delivery of corn to VeraSun, a significant ethanol producer that filed bankruptcy in late 2008. 

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