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Three Approaches To Applying 11 U.S.C § 546(E)’S “Safe Harbor” To Private Lbos, Shlomo Lazar

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code gives a trustee and a debtor-in-possession the authority to avoid fraudulent transactions. However, 11 U.S.C. § 546(e) limits the trustee’s avoiding powers by providing a safe harbor for “settlement payments.” Generally, a “settlement payment” is a payment of cash or securities made to complete a securities transaction. For example, money that an individual pays to a stockbroker to buy publicly traded shares is a settlement payment. A recent issue that has arisen is whether payments made to former shareholders in connection with a private leveraged buyout (LBO) constitute a “settlement payment.”

Depending on which jurisdiction a …

The Evolution Of The Settlement Payment Defense?, Tianja Samuel

Bankruptcy Research Library

(Excerpt)

Each year U.S. bankruptcy courts decide hundreds of cases in which debtors, or their trustees, seek to avoid preferential payments. In many of these cases, creditors successfully defend themselves by convincing the court that a statutory safe harbor provision is applicable. The settlement payment defense is one safe harbor provision that—although frequently utilized by creditors—has consistently raised questions about its own scope and applicability. The Second Circuit answered some of these questions, for the first time, in In re Enron Creditors Recovery Corp. In what some believe was an expansive decision, the court held that the settlement payment …