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D&O Policy 'Bankruptcy Exclusion' Held To Be an Unenforceable 'Ipso Facto' Clause
Among the more mundane aspects of Chapter 11 bankruptcy analysis — whether pre-petition planning by a prospective debtor or post-petition evaluation by creditors — is the review of contracts which may be deemed "executory" under 11 U.S.C. §365. This is because a debtor, pursuant to that statute's subsection (a), and subject to certain restrictions not relevant here, may "assume" valuable contracts or "reject" those which are financially disadvantageous.
As a predicate to such assumption, a debtor must either "cure" or provide "adequate assurance" that it will "promptly cure" any defaults in existence at the time that assumption is proposed. 11 U.S.C. §365(b)(1)(A). If a contract provides that simply being in bankruptcy is a default, although such cure would seem to be impossible to accomplish, the Bankruptcy Code solves for this problem by providing that the cure obligation "does not apply to a default that is a breach of a provision relating to (A) the insolvency or financial condition of the debtor … [or] (B) the commencement of a [bankruptcy] case …." 11 U.S.C. §365(b)(2). These disfavored provisions generally are referred to (although not in the statute) as "ipso facto clauses."
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Summary Judgment Denied Defendant in Declaratory Action by Producer of To Kill a Mockingbird Broadway Play Seeking Amateur Theatrical Rights
Risks of “Baseball Arbitration” in Resolving Real Estate Disputes
“Baseball arbitration” refers to the process used in Major League Baseball in which if an eligible player's representative and the club ownership cannot reach a compensation agreement through negotiation, each party enters a final submission and during a formal hearing each side — player and management — presents its case and then the designated panel of arbitrators chooses one of the salary bids with no other result being allowed. This method has become increasingly popular even beyond the sport of baseball.