In re National Gas Distributors, LLC: Court Narrows Safe Harbor Provisions for Commodities and Derivatives Transactions”

Recent amendments to the United States Bankruptcy Code have expanded the scope of parties and transactions entitled to the benefit of its “safe harbor” provisions for commodities and derivatives transactions. However, in Hutson v. Smithfield Packing Co. (In re National Gas Distributors, LLC), 369 B.R. 884 (Bankr. E.D.N.C. 2007), the United States Bankruptcy Court for the Eastern District of North Carolina concluded that a contract for physical supply of natural gas to an end user was not a “swap agreement” and that the non-debtor counterparty was therefore not entitled to a safe harbor exemption from avoidance of prepetition transfers. This decision exemplifies the reluctance of some judges to read these safe harbor provisions expansively, even as Congress continues to broaden their scope through successive statutory amendments.