The acceleration of a buyer`s obligation by a seller to pay the repurchase price of securities purchased under a repo agreement, as well as the liquidation by the purchaser of the securities purchased from the purchaser and the cancellation of pension transactions that have not yet taken place should be protected by the safe ports of Section 555 and Section 362 (b)6)2. In most cases, the non-indebted party will exercise its rights as soon as possible when it learns that its counterparty has filed an insolvency claim in order to reduce any losses and to ensure that the amounts eventually owed to the non-debtor party are against the collateral held by the non-debtor party. It should be noted that if the consideration is „from the money,“ all amounts owed to the debtor would be measured and due at the end of the outstanding negotiation1.1 On the other hand, payments against a debtor through all collateral held by or for the benefit of the counterparty would be measured at the time of liquidation/cessation, but would only be able to pay after the debtor`s plan was confirmed and even probably a fraction of the actual amount of the claim. The filing of a Chapter 11 petition also does not mean that the debtor withdraws from the transaction or that the negotiation activity must or must cease before the petition. The Bankruptcy Act allows a Chapter 11 debtor to continue to operate. In many cases, a debtor intends to continue trading derivatives after the petition, particularly if the debtor is an airline or is active in another transaction for which derivatives trading is a significant hedge against increased costs that could threaten his ability to restructure. To this end, many debtors will seek bankruptcy court authorization to continue trading derivatives after the petition. The subsequent application costs incurred by a debtor in connection with the operation of his activities or the administration of the estate are more priority than unsecured pre-petitions and are generally paid in full. That said, the Safe Harbor States of the Bankruptcy Act, which protect the rights of a non-debtor counterparty on derivatives received prior to the petition, do not apply to post-petition bargaining activities. Therefore, the non-debtor counterparty should require the debtor to seek the registration of an order protecting the other party`s right to pursue contractual remedies as a result of the petition before carrying out such activity. The security port bankruptcy law also does not prevent litigation when there is a dispute over the terms of trade. If the relevant OVER-the-counter derivative has not been clearly documented or reduced to a handwriting (including electronic writing) and there is disagreement over the terms between the parties, the non-indebted party may be compelled to challenge the dispute in the bankruptcy court. The non-indebted party may be delayed or prohibited from terminating or winding up security as long as the dispute is pending or may be held liable for damages to the estate if the court finds that the safe ports were not applicable or that the derivative did not permit early termination.
While clear documentation is the best way to avoid litigation, the non-debtor, if it becomes unavoidable, should seek the exemption from the bankruptcy court in order to avoid the automatic stay being affected.
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