Both the First Energy Solutions and PG&E bankruptcies have seen proceedings regarding power purchase and similar agreements (PPAs) that raise this question.

Background

Contracts often contain provisions that enable a party to terminate or modify the contract based on the other party's bankruptcy filing, insolvency or deteriorating financial condition. In general, the Bankruptcy Code renders these types of provisions (sometimes referred to as "ipso facto" clauses) ineffective. Specifically, under section 365(e)(1) of the Bankruptcy Code (emphasis added):

On February 17, 2016, the Federal Deposit Insurance Corporation (“FDIC”) and the Securities and Exchange Commission (“SEC”) (collectively, the “agencies”) jointly proposed a rule to supplement the statutory provisions of Title II of the Dodd-Frank Act (the “Orderly Liquidation Authority” or “OLA”) that govern the orderly liquidation of a “covered broker or dealer”—i.e., an SEC-registered broker or dealer that is a member of the Securities Investor Protection Corporation (“SIPC”) and for which a systemic risk determination to trigger the application of the OLA has been made.

Nearly three years after the High Court decision on the case of BNY Corporate Trustee Services Ltd v Eurosail UK 2007 – 3BL PLC and others was handed down, the case has run its course in the Supreme Court. The case, which considers the correct interpretation of the balance-sheet insolvency test in section 123(2) of the Insolvency Act 1986, is of importance to insolvency practitioners, financial institutions, legal advisers, company directors and companies.  

Court of Appeal decision  

Release provisions

The scope of the powers afforded to the security agent by the so called “release provisions” found in many intercreditor agreements employed in LBO deals has come under scrutiny recently. A number of restructurings have relied upon using the security agent’s powers to implement a restructuring and many others will have at least considered using them.