RECENT BANKRUPTCY DEVELOPMENTS

6. Executory Contracts. A decision of the Fifth Circuit interprets the limitation in section 365(e)(2)(A) limiting assignability of contracts when applicable law excuses the nondebtor from accepting performance from or rendering performance to the trustee or an assignee. The Court holds that the proper approach is based on an "actual" or "as-applied" basis as opposed to a hypothetical approach and, under such an approach, the nondebtor must show that the contract actually will be assigned or that the nondebtor party will in fact be asked to accept performance from or render performance to a different party. In re Mirant Corp., ___ F.3d ___, 2006 WL 330121 (5th Cir. 2006).

7. Property of the Estate.

(a)

In an en banc decision, the Fifth Circuit held crop disaster payments authorized by legislation adopted after the filing of the petition were not property of the estate even though the payments were on account of a pre-petition occurrence. The Court reasoned that the debtor had no interest or expectancy in the payments at the time of the petition, and rejected the notion that the situation was similar to tax loss carrybacks based on prepetition losses because the carrybacks were rooted in the pre-bankruptcy past and the debtors had an interest in the refunds when they filed their petitions. Finally, the Court rejected the notion that the "property" of the estate was the crop loss itself, and the disaster payments were proceeds of such property on the ground that there was no prepetition interest in the disaster payments. In re Burgess, 438 F.3d 493 (5th Cir. 2006).

(b)

The Eleventh Circuit has held that the doctrine of in pari delicto applies to a bankruptcy trustee as well as the debtor, and the defendants could raise defenses against the trustee which they could have raised against the debtor outside of bankruptcy. Thus, the trustee of a debtor that devised, promoted and operated a Ponzi scheme, was barred from recovering on federal racketeering claims against entities that allegedly aided and abetted the scheme by funneling investors into it. Official Committee of Unsecured Creditors of PSA, Inc. v. Edwards, 437 F.3d 1145 (11th Cir. 2006).