Structured Finance Litigation Update

Recent Court Decisions Clarify Enforceability of Setoff Provision in Structured Finance Transactions Following Counterparty Bankruptcy Filing: Contractual setoff and netting rights are among the more common protections bargained for in derivatives and structured finance transactions. In addition to the netting of gains and losses across multiple transactions after early termination under an International Swaps and Derivatives Association (“ISDA”) master agreement, counterparties may also contract for setoff of non-derivative obligations between the same counterparties against derivatives obligations (“cross-product netting”) and setoff of the obligations of one counterparty against obligations of affiliates of the other counterparty (“cross-affiliate netting”).

Of concern to any party is the enforceability of cross-affiliate and cross-product netting following its counterparty’s bankruptcy filing. Section 553 of title 11 of the United States Code (the “Bankruptcy Code”) governs setoff following the commencement of a bankruptcy case. Section 553 provides, in relevant part, that a bankruptcy filing “does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case.” 11 U.S.C. § 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.

© Quinn Emanuel Urquhart & Sullivan, 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.