Executory Contracts and Leases in Bankruptcy: Strategies for Non-Debtors

In the current economic climate, savvy counsel should begin preparing for the next cycle by taking concrete steps and developing actionable strategies to protect their clients' positions under long-term contracts against the risk that their customers, suppliers, trading partners, or other contract counterparties may face financial difficulties and file for bankruptcy during the next economic downturn.

By anticipating and preparing for the possibility of insolvency--whether in the near or distant future--non-debtor parties will be in a better position to protect their interests and maximize their recovery in any potential bankruptcy proceeding. And during each stage of the process, from the initial lease or contract drafting to the debtor's pre-bankruptcy financial difficulty and ultimate bankruptcy, various strategies are available to protect the non-debtor's interests under a lease or executory contract.

Specific drafting practices can enhance the position or improve a client's recovery if its contract counterparty ends up in bankruptcy. Similarly, if it becomes apparent that a party is facing financial difficulty and a bankruptcy filing seems likely, there are proactive and preventive measures the non-debtor can take to strengthen its position under the contract. And even during bankruptcy, the non-debtor has several innovative ways it can protect its interests during this period.

Listen as our panel of seasoned bankruptcy counsel discusses strategies, insights, and practical tips for protecting non-debtor client interests regarding executory contracts and leases with financially troubled counterparties both before and during bankruptcy proceedings.

1. Overview: Getting ready for the next cycle
   1. Current trends and forecasts
   2. Definition of executory contract
   3. Bankruptcy code Section 365: Assumption, assignment and rejection
2. Drafting executory contracts
   1. Default and termination provisions
   2. Payment provisions
   3. Collateral and guarantees
   4. Multiple agreements
   5. Language conditioning continued performance on other party's strict performance
   6. Interest and attorneys' fees
   7. Recoupment and setoff provisions
   8. Non-assignability
   9. Financial covenants
   10. Structuring contracts
3. Leases: Drafting and transactional considerations
4. Strategies before bankruptcy
   1. Terminate the contract
   2. Grant waivers
   3. Monitor solvency
   4. Protective payment methods
   5. LOCs and guaranties
   6. Avoid preference liability
5. Strategies in bankruptcy
   1. Compelling a decision
   2. Adequate protection
   3. Relief from automatic stay
   4. Administrative claims
   5. Examination of the debtor
6. Final considerations

The panel will review these and other vital questions:

• What drafting and transactional strategies can counsel employ to protect client interests if bankruptcy occurs?
• How do federal courts define executory contracts?
• What particular issues do real property leases trigger in bankruptcy?
• Can a post-petition event alter a contract's executory status?
• What protections does Section 365 afford to non-debtors?