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On February 5, 2010, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) issued a ruling (the “Memorandum Opinion”) creating a new wrinkle in the Lehman Brothers bankruptcy cases.1 The Memorandum Opinion is directly at odds with the decisions previously rendered by certain English courts regarding priority of payment provisions (the “Priority Provisions”) with respect to collateral under the “Dante Program.” Participants to derivative transactions should take notice of the Memorandum Opinion because of its impact on the following issues: (1) the non-effectuating interpretation of perceived self-effectuating provisions in the transaction documents; (2) possible expansion of the protections of the anti-ipso facto provisions in the U.S. Bankruptcy Code; and (3) the narrow reading of the “safe harbor” provisions of the U.S. Bankruptcy Code intended to protect participants to derivative transactions.
Excerpted from Bloomberg Law Reports - Bankruptcy, Vol. 4, No. 17, April 26, 2010 © Bloomberg Finance L.P. 2010. Originally published by Bloomberg Finance LP. Reprinted by permission. The full article appears in the PDF below.