Stroock Special Bulletin
"In re MBS Management Services, Inc.: Is a Requirements Contract Eligible for Safe Harbor Protection?"
In a recent decision, In re MBS Management Services, Inc., No. 09-1158, 2010 WL 1851077 (Bankr. E.D. La. May 7, 2010), a Louisiana bankruptcy court examined whether a requirements contract qualified as a "forward contract" and was entitled to the protections of the safe harbor provisions of the United States Bankruptcy Code. The court concluded that a requirements contract may so qualify, upon a showing that such a contract enables the parties to hedge risk associated with the particular commodity.
This Stroock Special Bulletin looks at the MBS Management decision, including the court's disagreement with a North Carolina bankruptcy court's decision in Hutson v. M.J. Soffe Co. (In re National Gas Distributors, LLC), in which the North Carolina court denied safe harbor protection to a requirements contract because the quantity term was not fixed at the time of contracting.