In Hutson v. E.I. du Pont de Nemours & Co.
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USA, Derivatives, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Bankruptcy, Debtor, Fraud, Natural gas, Safe harbor (law), Swap (finance), Commodity, Maturity (finance), Systemic risk, Title 11 of the US Code, DuPont, United States bankruptcy court, Fourth Circuit, Trustee
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Delaware Bankruptcy Court decision in SemCrude prohibits triangular setoff in absence of safe harbor
Earlier this year, the United States Bankruptcy Court for the District of Delaware ruled that a nondebtor cannot effect a “triangular” setoff of the amounts owed between it and three affiliated debtors, even if the parties had entered into pre-petition contracts that expressly contemplated multiparty setoff.1 In reaching its decision, the Court relied principally on the plain language of section 553(a) of the United States Bankruptcy Code, which limits setoff to “mutual” obligations — i.e., direct obligations between a single obligor and obligee.
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