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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

  • work Practice Area

    Bankruptcy

Date & Time
  • event Date

    Thursday, September 9, 2021

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$297.00
CLE
ALL

This CLE course will consider the rights, obligations and negotiating posture of a contract counterparty following the rejection of that contract under Bankruptcy Code Section 365. We will give particular consideration to how recent U.S. Supreme Court authority on this question has affected leverage and negotiating positions. We will also consider how creative counsel structure and draft agreements to maximize leverage in the event of a future insolvency or bankruptcy by one of the parties to the contract.

Faculty

Jonathan W. Young
Partner
Troutman Pepper Locke LLP

Mr. Young is chair of the firm’s Bankruptcy and Restructuring Practice Group — a team of more than 50 professionals representing a wide range of stakeholders and industries in a variety of courtroom and boardroom situations. His practice encompasses out-of-court restructuring, distressed lending and M&A, governance of financially stressed and distressed entities, and complex bankruptcy and insolvency proceedings in the U.S. and internationally. Mr. Young advises investors, lenders, noteholders, directors, equity sponsors, and portfolio companies across multiple industries and jurisdictions. He also represents trustees, receivers, and other fiduciaries in reorganizing, restructuring, or liquidating financially distressed entities. When consensus and restructuring are not achievable, Mr. Young's practice also extends to complex litigation, focusing on governance disputes, avoidance, and insolvency-related claims, and secured lending and related intercreditor issues.

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Chelsey R. List
Attorney
Troutman Pepper Locke LLP

Ms. Rosenbloom's practice focuses on corporate restructuring, insolvency, bankruptcy and related litigation matters. She represents a wide spectrum of clients, including secured and unsecured creditors, corporate debtors, indenture trustees and other interested parties in bankruptcy-related transactions and out-of-court workouts. Ms. Rosenbloom advises clients on creditors' rights, distressed acquisitions and dispositions, debtor-in-possession financing, loan-to-own strategies, and other matters.

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Description

In Mission Prod. Holdings Inc. v. Tempnology L.L.C., 139 S. Ct. 1652 (2019), the U.S. Supreme Court held that the debtor's rejection of an executory contract under Bankruptcy Code Section 365 operates as a breach, not a termination, of the contract and that "all the rights that would ordinarily survive a contract breach ... remain in place." Thus, Tempnology recognized that the contracting counterparty could decide whether to continue performing and maintain the vested property rights granted under that contract, or stop performing and give up or return to the debtor those vested property rights. Although Tempnology involved the post-rejection use of a trademark, the case has a much broader application.

More and more counterparties are testing the parameters of Tempnology and seeking to maximize the rights of counterparties after rejection. The issue can be critical when the counterparty holds an option. Whether the option can be enforced may turn on whether the option has been exercised but not performed. One reading of Tempnology is that vested rights stay with the non-debtor.

The rationale of Tempnology has also become increasingly important in the context of the rejection of midstream contracts when oil and gas exploration and production companies have filed bankruptcy. Many of these midstream contracts convey to the counterparty certain real property rights, such as an easement or a dedication of oil and gas. Courts distinguish between the rejection of the contract that may contain a covenant running with the land and the effect of the rejection on the enforceability of the covenants.

Outline

  1. Overview of statutory framework for contract rejection under Section 365(g)
  2. Tempnology decision and rationale
  3. Tempnology as applied in different types of agreements
    1. Options
    2. Oil & gas
    3. Debtor as licensee or grantee
    4. Debtor's post-rejection obligations
  4. Strategies for counterparties

Benefits

The panel will review these and other pivotal issues:

  • What types of vested rights and options do counterparties have?
  • How can counterparties improve their positions in bankruptcy using the Tempnology rationale?
  • Could the breaching party (the debtor) use "rejection as a breach" to enable the debtor to retain benefits without assuming contracts?
  • Does the analysis change if the debtor is the party that holds the vested right, or as in Tempnology, is the licensee and not the licensor?