Almost 12 years after the commencement of the Lehman Brothers bankruptcy case, we now know the answer to one of that case’s most interesting questions—namely, whether so-called “flip clauses” are protected settlement payments or void as ipso facto bankruptcy provisions.

The existing jurisdictional conflict¹ between US bankruptcy courts under the Federal Bankruptcy Code and the Federal Energy Regulatory Commission (FERC) regarding required approvals for a debtor in bankruptcy to reject an executory Federal Power Act (FPA)-jurisdictional agreement has also been asserted by FERC with respect to Natural Gas Act (NGA)-jurisdictiona

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 January 25, 2019, the US Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order clarifying its position with regard to bankruptcy filings that seek to reject Commission-jurisdictional wholesale power purchase agreements. In response to a petition for a declaratory order and complaint filed by NextEra Energy, Inc. and NextEra Energy Partners, L.P.

After months of speculation, it is now official : PG&E (both the parent, PG&E Corporation, and its subsidiary, Pacific Gas & Electric Company), having faced extraordinary challenges relating to catastrophic wildfires in 2017 and 2018, has announced that a voluntary bankruptcy filing “is appropriate, necessary and in the best interests of all stakeholders, including wildfire claimants, PG&E’s other creditors and shareholders, and is ultimately the only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers.” As

Arthur C. Clarke famously observed: “Any sufficiently advanced technology is indistinguishable from magic.” Our regulatory, legislative, and judicial systems illustrate this principle whenever new technology exceeds the limits of our existing legal framework and collective legal imagination. Cryptocurrency, such as bitcoin, has proven particularly “magical” in the existing framework of bankruptcy law, which has not yet determined quite what bitcoin is—a currency, an intangible asset, a commodity contract, or something else entirely.

Arthur C. Clarke famously observed: “Any sufficiently advanced technology is indistinguishable from magic.” Our regulatory, legislative, and judicial systems illustrate this principle whenever new technology exceeds the limits of our existing legal framework and collective legal imagination. Cryptocurrency, such as bitcoin, has proven particularly “magical” in the existing framework of bankruptcy law, which has not yet determined quite what bitcoin is—a currency, an intangible asset, a commodity contract, or something else entirely.

While significant energy here at the Bankruptcy Cave is devoted to substantive bankruptcy matters, not all aspects of a general insolvency practice are always fun and litigation. Oftentimes insolvency lawyers add the most value by helping clients avoid a bankruptcy filing, or by successfully resolving a case through a consensual transactional restructuring.

On January 17, 2017, in a long-awaited decision in Marblegate Asset Management, LLC v. Education Management Finance Corp.,1 the US Court of Appeals for the Second Circuit held that Section 316 of the Trust Indenture Act ("TIA") does not prohibit an out of court restructuring of corporate bonds so long as an indenture's core payment terms are left intact.

Individual debtors with old tax debts relating to late-filed tax returns may be surprised to find that those tax debts may not be dischargeable under section 523(a) of the Bankruptcy Code due to the lateness of the tax filing. There is a current Circuit split regarding whether a late tax filing constitutes a “return” at all, which is critical to the dischargeability inquiry. The Ninth Circuit weighed in last week in In re Smith, 2016 WL 3749156 (9th Cir. July 13, 2016), further cementing the split.