NRTN-BLP 46:4 2 Norton Bankr. L. & Prac.

3d 46:4

Page 1

Norton Bankruptcy Law and Practice 3d Database updated January 2010 William L. Norton, Jr. Part II. Analysis of the Bankruptcy Code Subpart 8. Administrative Powers (Code 361-366) Chapter 46. Executory Contracts and Unexpired Leases (Code 365) I. Introduction Summary 46:4.Overview of Bankruptcy Code 365 West's Key Number Digest West's Key Number Digest, Bankruptcy Treatises and Practice Aids Aaron, Bankruptcy Law Fundamentals 9:9 Dreher and Feeney, Bankruptcy Law Manual 8:40 (5th ed.) Ahern, III and MacLean, Bankruptcy Procedure Manual 6006:01 (2006 ed.) Afarin, Section 365Assumption and Rejection of Executory Contracts and Unexpired Leases, Norton Annual Survey of Bankruptcy Law (2006 ed.) 573 (September, 2006) Code 365, which governs the assumption, rejection, and assignment of most executory contracts and unexpired leases in a bankruptcy case, contains extensive provisions both granting authority to the trustee or debtor-in-possession and limiting that authority. Many provisions have been added since the original enactment of the Bankruptcy Code in 1978. The following table presents an overview of Code 365, as well as two sections under Chapter 11 of the Bankruptcy Code, to assist in an understanding of the various provisions relating to executory contracts and unexpired leases including the interaction between subsections and the effect of the status of the debtor in the contract or lease (e.g., lessee, seller of real property). 3101

2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

NRTN-BLP 46:4 2 Norton Bankr. L. & Prac. 3d 46:4

Page 2

Bankruptcy Code 365(a)

Debtor's (or Trustee's) Status Party to executory contract or unexpired lease Defaulting party to executory contract or unexpired lease

365(b)(1)

365(b)(2)

Party to executory contract or unexpired lease

365(b)(3) 365(b)(4) 365(c)(1)

Lessee under shopping center lease Lessee Party to personal performance contract, etc. Beneficiary of debt financing or financial accommodation Lessee (lessor) of terminated lease of nonresidential real property

365(c)(2)

365(c)(3)

365(c)(4)

Lessee of aircraft terminal or gate

365(d)(1)

Chapter 7 debtor

365(d)(2)

Chapter 9, 11, 12, or 13 debtor

365(d)(3)

Lessee of unexpired lease of nonresidential real property Lessee of unexpired lease of nonresidential real property Lessee of personal property other than

365(d)(4)

365(d)(5) (former number 365(d)(10))

Commentary Trustee (or debtor-in-possession) authorized to assume or reject most executory contracts and unexpired leases Trustee may not assume lease on which debtor defaulted absent cure, compensation, and adequate assurance of performance Default as used in Code 365(b)(1) does not include most ipso facto clauses based on debtor's bankruptcy/ financial condition Special protections for landlord in shopping center lease Lessor of real property excused from providing services if prior lease default Trustee may not assume or assign certain personal service contracts, etc., without consent of nondebtor party Trustee may not assume or assign debt financing/financial accommodations contracts Trustee may not assume or assign lease of nonresidential real property terminated under applicable nonbankruptcy law prior to order for relief Restrictions on assumption/ assignment of aircraft terminal and gate leases (repealed by 2005 Amendments) In Chapter 7 case, all executory contracts and unexpired leases of residential property or personal property not assumed within 60 days of order for relief (or extension) deemed rejected In Chapter 9, 11, 12, and 13 cases, trustee may assume or reject executory contracts and unexpired leases of residential property or personal property at any time before confirmation of plan unless earlier time set by court Trustee required to timely perform all obligations under lease of nonresidential real property pending rejection Trustee must assume lease within 120 days (or extension for 90 days); otherwise, lease deemed rejected Trustee must perform obligations arising

2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

NRTN-BLP 46:4 2 Norton Bankr. L. & Prac. 3d 46:4

Page 3

365(e)(1)

lease for personal, family, or household purposes Party to executory contract or unexpired lease Party to personal performance contract, etc., or beneficiary of debt financing/financial accommodation

365(e)(2)

365(f)

Trustee attempting to assign contract or lease Trustee rejects contract or lease

365(g)

365(h)

Lessor of real property or seller of timeshare interest and trustee rejects lease or contract

365(i)

Seller of real property or timeshare interest rejecting contract

365(j)

Seller of real property or timeshare interest rejecting contract

365(k)

Assignor of contract or lease under Code 365 Lessee assigning interest in lease

365(l)

365(m) 365(n) 365( o)

Lessor or lessee of real property Licensor of intellectual property Made capital commitment regarding an insured depository institution

365(p)

Lessee of personal property under lease that is rejected or not timely assumed

after 60 days following order for relief until lease is assumed or rejected Executory contract or unexpired lease may not be terminated by nondebtor under ipso facto provisions Executory contract or unexpired lease for personal performance, etc., not assumable absent consent of nondebtor; debt financing and financial accommodations contracts not assumable General rules relating to assignment of executory contracts and unexpired leases including limitations Rejection of contract or lease generally treated as prepetition breach unless contract or lease previously assumed; special rules when case later converted Lessee of rejected lease entitled to remain in possession of property for term of lease or may elect to treat the lease as terminated; similar rights accorded to purchaser of timeshare interest Purchaser of real property or timeshare interest in possession under rejected contract may continue to make payments under contract and obtain title Purchaser of real property or timeshare interest in possession treating rejected contract as terminated (or purchaser of such contract not in possession) receives lien on real property to extent of monies paid Trustee and estate relieved of liability for post-assignment breaches of contract or lease Lessor may require assignee make deposit or provide security substantially same as would be made by tenant initially Rental agreements to use real property treated as lease in Code 365 Special protections for nondebtor licensees of intellectual property Chapter 11 debtor with capital commitment with respect to an insured depository institution must maintain capital to remain in Chapter 11 Leased property is no longer property of the estate, and the automatic stay is ter-

2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

NRTN-BLP 46:4 2 Norton Bankr. L. & Prac. 3d 46:4

Page 4

1113

1114

minated Employer/collective bargaining agree- Special restrictions and procedures relatment (Chapter 11) ing to the modification or rejection of collective bargaining agreements Employer/retiree insurance benefits Special restrictions and procedures relatplan (Chapter 11) ing to the modification or rejection of retiree insurance benefit plans

The table presents only a summary of the various provisions relating to executory contracts and unexpired leases. The following sections in this Chapter address these provisions. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005[1] made some significant amendments to Code 365. The Act was enacted on April 20, 2005, and generally became effective on October 17, 2005, for cases filed on or after that date.[2]

[FN1]Pub. L. 109-8, 119 Stat. 23 (Apr. 20, 2005). [FN2]Pub. L. 109-8, 119 Stat. 23, 1406 (Apr. 20, 2005). Westlaw. 2010 Thomson Reuters. No Claim to Orig. U.S. Govt. Works. NRTN-BLP 46:4 END OF DOCUMENT

2010 Thomson Reuters. No Claim to Orig. US Gov. Works.