Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

The Metamorphosis of Assignment Clauses in Bankruptcy

By Robbin L. Itkin and Katherine C. Piper
April 27, 2005

How is this scenario for a debtor's nightmare?

You negotiate a license agreement that provides for the assignment of the agreement to successors in interest so long as they agree to be bound by the terms of the agreement. You then file a Chapter 11 bankruptcy and as a debtor in possession, seek to assume that license agreement. The other party to the contract objects to such assumption and the Bankruptcy Court says that in light of such objection you cannot assume the license agreement. You cannot reorganize without the license. You are dead.

This nightmare unfortunately is a reality. Recently, the Fourth Circuit Court of Appeals joined the Ninth, Third and Eleventh Circuits in adopting the “hypothetical test” in denying a debtor in possession's assumption of an executory contract under section 365(c) of the Bankruptcy Code despite an express assignability provision in the contract. In RCI Tech. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257 (4th Cir. 2004), the Fourth Circuit not only became the fourth Circuit Court of Appeals to follow the Catapult Test, as the hypothetical test is referred to in light of the Ninth Circuit Court of Appeals decision in In re Catapult Entm't., Inc., 165 F.3d 747 (9th Cir. 1999), but expanded the Catapult decision to deny assumption where the contract contained the objecting party's express consent to the assignment of the contract to successors in interest of the debtor.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

Legal Possession: What Does It Mean? Image

Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.

The Anti-Assignment Override Provisions Image

UCC Sections 9406(d) and 9408(a) are one of the most powerful, yet least understood, sections of the Uniform Commercial Code. On their face, they appear to override anti-assignment provisions in agreements that would limit the grant of a security interest. But do these sections really work?