“Update: Bankruptcy Safe Harbor Protection for Commodity Requirements Contracts”
In past Stroock Special Bulletins, we have reported on court decisions addressing whether an agreement to supply a purchaser’s requirements of a commodity qualifies for the “safe harbor” protections of the United States Bankruptcy Code. Courts have disagreed on the scope of these safe harbor protections. Based on dicta in an opinion of the Fourth Circuit Court of Appeals, a North Carolina bankruptcy court concluded in a 2009 decision (In re National Gas Distributors, LLC) that a requirements contract was not safe harbored, because the quantity was not fixed at the time of contracting. A Louisiana bankruptcy court disagreed with National Gas Distributors in a 2010 decision, In re MBS Management Services, Inc., holding that the absence of a fixed quantity was not dispositive, and where the contract met the express requirements for a “forward contract” under section 101(25) of the bankruptcy Code, and the contract served a hedging purpose, the supplier was entitled to the safe harbor protection from preference avoidance under section 546(e) of the Bankruptcy Code.
This Stroock Special Bulletin discusses a May 19, 2011 decision – Lightfoot v. MX Energy, Inc. – in which the United States District Court for the Eastern District of Louisiana affirmed the bankruptcy court’s decision in MBS Management.