Southern District of New York Deepens Internal Split Over Loophole in Bankruptcy Safe Harbor for Capital Markets Transactions
24 January 2014
Mayer Brown Legal Update
Section 546(e) of the Bankruptcy Code provides a safe harbor for certain pre-bankruptcy transfers made in connection with securities contracts by, to or for the benefit of financial institutions. A recent decision by the Bankruptcy Court for the Southern District of New York has emphasized a split in the jurisdiction over the scope of this safe harbor. While it remains to be seen how this split of authority will be resolved, the Bankruptcy Court’s decision would seem to embolden further efforts by creditors to obtain recoveries on state law fraudulent transfer claims that would otherwise be barred by the Bankruptcy Code safe harbors if brought by a trustee, a debtor or a representative of the debtor.