Contractual Rights Vanish Again in the "Bermuda" of Triangular Setoff

more+
less-

The enforcement of triangular setoffs in bankruptcy, where affiliates set off their claims against the debtor, received another setback in a recent decision in the Lehman bankruptcy cases. See In re Lehman Brothers Inc., No. 08-01420 (JMP) (SIPA), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011) Judge Peck’s decision followed the Delaware Bankruptcy Court's seminal decision in In re SemCrude, L.P., 399 B.R. 388 (Bankr. D. Del. 2009), which found that affiliated entities do not satisfy the mutuality requirement for triangular setoff under section 553(a) of the Bankruptcy Code.

In Lehman, UBS AG (UBS) terminated a swap agreement it had entered into with Lehman Brothers Inc. (Lehman) just prior to the entry of a liquidation order enforcing an automatic stay with respect to Lehman under the Securities Investor Protection Act (SIPA). Upon termination, UBS held approximately $170 million in collateral posted to secure the parties’ respective obligations. Upon termination and setoff under the swap agreement, $76 million remained for the estate, as agreed by the SIPA Trustee. However, UBS relied on its contractual rights in the swap agreement to set off an additional $23 million that Lehman owed to subsidiaries of UBS who were not party to the swap agreement. The SIPA Trustee objected to the additional setoff, claiming it was impermissible for failing to satisfy the mutuality requirement of section 553(a).

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bracewell & Giuliani LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.
×
Loading...
×
×