Second Circuit Adopts Transfer-by-Transfer Approach to Bankruptcy Code's Safe Harbor for Securities Contracts Payments

Summary

This article discusses a recent decision addressing Section 546(e) safe harbor. The scope of the Bankruptcy Code's safe harbor shielding certain securities, commodity, or forward-contract payments from avoidance as fraudulent transfers has long been a magnet for controversy, particularly after the U.S. Supreme Court suggested (but did not hold) in Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), that a debtor may itself qualify as a financial institution covered by the safe harbor by retaining a bank or trust company as an agent to handle payments, redemptions, and cancellations made in connection with a leveraged buyout transaction (LBO).