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.
Presented By
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.
Mr. Young is Co-Chair of the Firm's Bankruptcy, Restructuring and Insolvency Practice Group. He regularly advises investors, lenders, directors, equity sponsors and portfolio companies in connection with their rights and obligations relative to financial distress, insolvency and bankruptcy situations. He also advises trustees, receivers and other fiduciaries charged with reorganizing, restructuring or liquidating financially distressed entities.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Thursday, September 9, 2021
- schedule
1:00 p.m. ET./10:00 a.m. PT
- Overview of statutory framework for contract rejection under Section 365(g)
- Tempnology decision and rationale
- Tempnology as applied in different types of agreements
- Options
- Oil & gas
- Debtor as licensee or grantee
- Debtor's post-rejection obligations
- Strategies for counterparties
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?
