EXECUTORY CONTRACTS

C. BAPCPA Amendments Regarding Executory Contracts and Unexpired Leases, and Recent Cases Under Section 365 of the Bankruptcy Code

By Robert J. Feinstein
Pachulski, Stang, Ziehl, Young, Jones & Weintraub LLP — New York, NY

PART I: THE 2005 AMENDMENTS TO SECTION 365 OF THE BANKRUPTCY CODE

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") took effect on October 17, 2005. While media reports on the legislation largely focused on the changes to consumer bankruptcy cases, BAPCA also made a number of significant changes to provisions operative in business bankruptcy cases, including section 365 of the Bankruptcy Code governing executory contracts and unexpired leases, which are summarized below.

1. Limitation of Extensions of Time for Assumption or Rejection

Perhaps among the most controversial changes to the Code affecting business debtors is the limitation on the ability of a Chapter 11 debtor to assume or reject unexpired leases on nonresidential real property. Under the Code before BAPCPA, a debtor had 60 days from the commencement of the bankruptcy to assume or reject a nonresidential real property lease, which period could be extended by the bankruptcy court for cause shown. There was no express time limitation in section 365 on the number or length of extensions of the debtors' 60 day period the bankruptcy court could grant, thus giving the court the ability to grant repeated extensions of time for a debtor to assume or reject a lease over the objection of lessor. Under pre-BAPCPA law, it had become common practice in large Chapter 11 cases, particularly in retail cases, for a court to extend the debtor's time to assume or reject a nonresidential real property lease until the confirmation of a plan.

New section 365(d)(4) now substantially curtails the period of time the debtor may ultimately have