Introduction

Section 546(e) of the Bankruptcy Code provides a “safe-harbor” for certain transfers involving the purchase or sale of securities and protects those transfers from avoidance as constructive fraudulent transfers or preferences. The safe-harbor protects, among other things, transfers that are “settlement payments,”1 as used in the securities trade, as well as other transfers made to or from certain protected parties, including financial institutions, financial participants and stockbrokers, in connection with a securities contract.2 On April 21, 2011, Judge Drain of the United States Bankruptcy Court for the Southern District of New York issued an opinion in In re MacMenamin’s Grill Ltd.3 restricting the application of this seemingly broad provision to transactions that have a risk of impacting the public securities markets, despite the fact that the plain language appears to reach private stock transactions. Additionally, Judge Drain held that the term “transfer” as used in 546(e) does not encompass “obligations incurred” and as such does not prevent avoidance of a loan obligation that would otherwise fit within the reach of § 546(e).