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Lehman June 29
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Next Week in Bankruptcy
Jun 26, 2015 | The Wall Street Journal
By Tom Corrigan
On Monday in Manhattan, U.S. Bankruptcy Court Judge Shelley Chapman will be asked to approve a $1.28 billion settlement between Lehman Brothers Inc. and Barclays BCS -0.06% PLC, which bought Lehman’s brokerage business days after the investment bank’s 2008 collapse. -
Navigating a Triangular Setoff Through Safe Harbors
Jun 26, 2015 | Corporate Counsel
By Jeff J. Friedman and John J. Ramirez
...As one court observed, "outside of the bankruptcy context, … [such a triangular setoff provision] without a question is [] valid and enforceable … ." In re Lehman Brothers Inc., 458 B.R. 134, 139 (Bankr. S.D.N.Y. 2011) ( Lehman/UBS )...
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Barclays PLC
Section 553(a) of the Bankruptcy Code
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Jun 26, 2015 | The Wall Street Journal
By Tom Corrigan
On Monday in Manhattan, U.S. Bankruptcy Court Judge Shelley Chapman will be asked to approve a $1.28 billion settlement between Lehman Brothers Inc. and Barclays BCS -0.06% PLC, which bought Lehman’s brokerage business days after the investment bank’s 2008 collapse.
If approved, the settlement will end one of the long-running legal battles arising from the financial crisis.
The money, related to the assets that went to Barclays when it bought Lehman’s U.S. brokerage out of bankruptcy in the frantic days of September 2008, was a key issue in a 34-day trial in 2010. The Lehman brokerage and its parent company accused Barclays of negotiating a secret discount when it bought Lehman’s brokerage.
As part of the deal, the two sides will drop current and future litigation against one another, and Lehman will pay Barclays $1.28 billion. More than $600 million in cash will become available for Lehman creditors, because Lehman had set aside about $1.87 billion for the dispute. Both Lehman and Barclays said the payment is about $80 million less than what the trustee winding down Lehman’s brokerage business would have had to pay without a settlement.
On Wednesday in Wilmington, Del., Altegrity Inc., the parent of a government security investigations contracting business, will ask a judge to approve its bankruptcy-exit plan.
Altegrity and its affiliates filed for chapter 11 bankruptcy protection in February, having lost the federal government contracts that accounted for about one-third of its revenues...
For full story:
http://blogs.wsj.com/bankruptcy/2015/06/26/next-week-in-bankruptcy-7/
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Navigating a Triangular Setoff Through Safe Harbors
Jun 26, 2015 | Corporate Counsel
By Jeff J. Friedman and John J. Ramirez
Section 553(a) of the Bankruptcy Code preserves a creditor's prepetition right to setoff. Courts have strictly construed Section 553(a) to limit the preservation of setoff rights to claims and debts that arose prior to the commencement of the debtor's bankruptcy case. Courts have also strictly construed the mutuality requirement in Section 553(a) to require that debts be due to and from the same two parties in the same legal capacities. This construction has been routinely held to prevent what has been labeled as "triangular setoff" with respect to a debtor in bankruptcy.
Virtually all definitions of setoff provide for the netting of debts or claims and counterclaims between the same two parties acting in the same legal capacities. What is typically meant by the term "triangular setoff" is a contractual agreement where the debtor has agreed that a debt owed to the debtor by party A, can be applied to satisfy a debt owed by the debtor to party B. As one court observed, "outside of the bankruptcy context, … [such a triangular setoff provision] without a question is [] valid and enforceable … ." In re Lehman Brothers Inc., 458 B.R. 134, 139 (Bankr. S.D.N.Y. 2011) ( Lehman/UBS ).
... Since SemCrude, there have been three reported decisions dealing with the contours of mutuality and Sction 553(a) in the context of certain of the safe harbors. The first, In re Lehman Brothers Holdings, Inc., 433 B.R. 101 (Bankr. S.D.N.Y. 2010), aff'd 445 B.R. 130 (S.D.N.Y 2011) ( Lehman/Swedbank), held that Swedbank AB could not setoff funds it received from the debtor after the commencement of its bankruptcy case, against the obligations of the debtor owed upon the termination of a pre-petition swap agreement that was a Safe-Harbored Contract. The bankruptcy court found that safe harbor provisions in Sections 560 and 561 of the Bankruptcy Code did not alter the "bedrock" principle of mutuality preserved in Section 553(a) and that Section 553(a) requires both the debt owed to the debtor and the claim of the creditor to have arisen prior to the commencement of the debtor's bankruptcy case. Id. at 112-113.
A subsequent decision by the same court had a more typical fact pattern arising out of the triangular setoff provision often found in International Swaps and Derivatives Association, Inc. (ISDA) master agreements. In In re Lehman Brothers Holdings, Inc., 458 B.R. 134 (Bankr. S.D.N.Y. 2011) (Lehman/UBS), UBS AG (UBS) sought to apply a collateral surplus remaining after termination of its swap agreement with the debtor to a debt owed by the debtor to UBS's affiliate. The court acknowledged that the provision in the schedule to the ISDA master agreement between UBS and the debtor providing for the setoff of any amount owed by UBS to the debtor against any amount owed to UBS's affiliates by the debtor was enforceable under New York law. Nevertheless, citing to SemCrude and its own decision in Lehman/Swedbank, the court held the provision to be unenforceable in light of the mutuality requirements of Section 553(a). Id. at 139-140. The court, consistent with its holding in Lehman/Swedbank, held that the safe harbor provisions of Sections 560 and 561 of the Bankruptcy Code did not eliminate the mutuality requirements of Section 553.
More recently, the Delaware bankruptcy court was confronted by essentially the same fact pattern as the court in Lehman/UBS, and reached the same conclusion using the same rationale. In re American Home Mtg. Holdings, Inc. (Sass v. Barclays Bank PLC), 501 B. R. 44 (Bankr. D. Del. 2013). In that case, relying on the safe harbors, Barclays Capital, Inc. (Barclays) set off amounts owed to the debtor, AHM Investment, under a terminated swap agreement against amounts owed by AHM Investment to its affiliate, Barclays Bank PLC. In addition to its reliance on the mutuality analysis in the SemCrude , Lehman/Swedbank and Lehman/UBS decisions, the court cited to the policy argument in SemCrude...
For full story:
http://www.corpcounsel.com/home/id=1202730620743/Navigating-a-Triangular-Setoff-Through-Safe-Harbors?mcode=1202617073467&curindex=0&slreturn=20150529042334
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Barclays PLC
Section 553(a) of the Bankruptcy Code
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