Bankruptcy Court Limits the Scope of "Forward Contracts"

Jackson Walker

The United States Bankruptcy Court for the Western District of Wisconsin (the "Court") recently issued an opinion analyzing the definition of "forward contract" in the context of the safe harbor provisions of the U.S. Bankruptcy Code (the "Code").1

In the case of In re Renew Energy, Plains Marketing Canada("Plains") entered into three contracts to sell natural gasoline to Renew Energy LLC ("Debtor"). The parties entered into two contracts in February 2008 with terms that expired in December 2008 (the "February Contracts"), and a third contract on October 28, 2008 that expired on October 31, 2008 (the "October Contract").2 After Debtor filed for bankruptcy on January 20, 2009, the trustee brought a preference action against Plains to recover approximately $808,000 in payments that Debtor made to Plains under the February Contracts and October Contract (the "Contracts") within the 90 days immediately prior to the bankruptcy filing (the "Preference Period"). Plains moved for summary judgment, claiming that Debtor's payments made during the Preference Period were"settlement payments" under "forward contracts" and therefore were protected by the Code's safe harbor rights.3 The key issue analyzed by the Court was whether the Contracts constituted "forward contracts" under the Code.

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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.

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