What is Section 365 of the Bankruptcy Code?

What is Section 365 of the Bankruptcy Code?

Bankruptcy Code §365(a) provides that “the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor.” You would think these words are simple and straightforward. You would be wrong. This section is long. It is rifled with special-interest legislation.

What is an executory contract under bankruptcy law?

In its simplest terms, an executory contract in bankruptcy is a contract under which one or both parties have important duties to perform. Common examples of such agreements are real estate leases whose terms have not expired, equipment leases and supply contracts.

What does it mean to reject a contract in bankruptcy?

If the debtor does not want to continue receiving the benefits of the lease or contract – for example, if the debtor is closing underperforming locations or the contract is for goods that are not necessary to the continuing operations – the debtor will reject the contract.

What is a 365 contract?

365 Contracts means U.S. Debtor Contracts that are Executory Contracts and were entered into before the Petition Date that the Purchaser may elect to have a U.S. Debtor assume and assign pursuant to section 365 of the U.S. Bankruptcy Code.

What is an example of an executory contract?

An example of an executory contract would be an apartment lease. When you enter into a lease agreement, you are promising to pay the rent for a period of time. Until the term expires, the contract promises have not been fulfilled. Put another way, a landlord generally rents an apartment under a lease contract.

How are executory contracts treated in bankruptcy?

Executory Contracts are treated differently from general unsecured claims in that: The customer, or the bankruptcy trustee, has the right to decide whether to agree to perform or refuse to perform the obligations under the executory contract. The consent of the non-debtor is not necessary.

What are ipso facto clauses?

An ipso facto clause is a contractual provision that allows one party to the contract to terminate or modify the operation of the contract upon the occurrence of a specified insolvency related event (such as the appointment of an administrator, receiver or liquidator) in respect of another party.

What does ipso facto means?

by that very fact
Legal Definition of ipso facto : by that very fact or act : as an inevitable result drove the getaway car and was ipso facto an accessory. History and Etymology for ipso facto. New Latin, literally, by the fact itself.

What happens when a debtor rejects a contract?

Rejection results in breach of the contract, with any claim for damages treated as a pre-petition claim against the estate on a par with the claims of other unsecured creditors (unless the debtor has posted security).

What happens when a trustee rejects an executory contract?

If the trustee decides not to assume a contract, then she rejects it. Since the bankruptcy estate takes the place of the debtor for the debtor’s liabilities and contractual obligations that arose before bankruptcy, rejection of an executory contract removes both the debtor and the estate as a party to the contract.

What makes a contract executory?

An executory contract is a contract that has not yet been fully performed or fully executed. It is a contract in which both sides still have important performance remaining. However, an obligation to pay money, even if such obligation is material, does not usually make a contract executory.

What does Section 365 ( N ) mean in bankruptcy?

Here’s the core language I’d use: Bankrupcty. The parties intend that all licenses that Acme grants the Licensee under this agreement are, for purposes of section 365 (n) of the Bankruptcy Code, licenses of rights to “intellectual property,” as that term is defined in section 101 of the Bankruptcy Code.

What does title 365 of the US Code mean?

11 U.S.C. § 365 – U.S. Code – Unannotated Title 11. Bankruptcy § 365. Executory contracts and unexpired leases (a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor.

When to use Section 365 ( N ) in a license?

If the contract containing the section 365 (n) language isn’t the only contract that’s relevant for purposes of the licenses in question, you should refer to any other such contract: The parties intend that the [specify contract] is “an agreement supplementary to” this agreement, as that phrase is used in section 365 (n) of the Bankruptcy Code.

Can a licensee claim its rights under the Bankruptcy Code?

It’s not necessary that you address by contract issues relating to section 365 (n) in order for a licensee to claim its rights under the Bankruptcy Code. But whenever a party intends for a given contract circumstance to fall within the scope of a given statute, it’s best to say as much in the contract.