Ohio Bankruptcy Court Adopts Actual Test to Determine Whether Certain Unassignable Contracts Can Be Assumed in Bankruptcy

Summary

This article discusses a recent bankruptcy court decision addressing whether the actual or hypothetical test should determine whether a trustee or DIP may assume or assign a contract that cannot be assigned under applicable law without the non-debtor counterparty's consent in accordance with Section 365(c)(1) of the Bankruptcy Code. Disagreement regarding the interpretation of Section 365(c) of the Bankruptcy Code has led to divergent rulings among the bankruptcy and federal circuit courts regarding whether a bankruptcy trustee or Chapter 11 debtor can assume an executory contract or unexpired lease that is unassignable under applicable non-bankruptcy law without the counterparty's consent—even where the debtor has no intention of assigning the agreement to a third party.