Page 3 - Corporate Restructuring And Bankruptcy

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Corporate Restructuring And Bankruptcy | MONDAY, JUNE 23, 2014 | S3

order approving the assumption motion. of whether assumption and assignment must of §365 clearly indicate that assumption and to avoid accruing additional unnecessary

On Aug. 15, 2012, the court entered an occur at the same time involves the interac- assignment are “independent concepts” that administrative expenses, which is consistent
order approving the assumption motion tion of three provisions of the Bankruptcy could likewise take place at different times.
with §365(k).
and Kodak’s assumption of the Lease (the Code:
Next, the court noted that unlike the 210- ITT also argued that while the Bankruptcy
assumption order), which contained the • Section 365(f)(3), which allows a debtor day deadline (after iling for bankruptcy) to Code discusses a subsequent rejection of an
same reservation of rights language as the to assign executory contracts and unexpired assume an unexpired lease, there is no paral- assumed contract in §503(b)(7), there is no
proposed order.
leases notwithstanding any contractual pro- lel deadline in §365(d)(4) to assign. The 210- corollary discussion regarding a subsequent
Several months after the entry of the hibitions on assignment.
day deadline was added by Congress in 2005 assignment of a previously assumed contract.
assumption order, Kodak decided to sell the • Section 365(d)(4), which requires non- to “limit the discretion of judges to extend Thus, ITT argued that the absence of any
business that related to the Lease. Accord- consensual assumption to occur no later than time to assume or reject certain commercial such provision gives a negative inference

ingly, on Dec. 21, 2012, Kodak entered into 210 days after the petition date (an initial contracts and to provide landlords with great- that an assignment cannot take place after
an asset purchase agreement (the APA) with 120 days plus a single 90-day extension).
er certainty as to such tenancies.” The court assumption. The court disagreed and found
RED-Rochester (the assignee), providing for • Section 365(f)(2), which allows a debtor explained that permitting post-assumption that when Congress provided a 210-day dead-
the assignee’s purchase of certain assets of to assign contracts and leases if they are assignment of unexpired leases is consistent line to assume a contract, but explicitly did
Kodak and Kodak’s assignment of the Lease assumed in accordance with §365 and the with the goals of the Bankruptcy Code. Con- not provide for a deadline to assign a con-
to assignee. Kodak requested the court’s assignee provides adequate assurance of versely, the court found that “[c]onstruction tract, Congress permitted the assignment to
approval of the APA and the proposed assign- future performance (which was not in dis- of §365(d)(4) to cut off assignment rights take place even after the 210-day assumption
ment of the Lease to assignee. ITT objected pute in Kodak).
would shift the balance in favor of landlords deadline.

to the proposed assignment of the Lease ITT raised several arguments in support of beyond what Congress provided and improp- The court also rejected ITT’s argument that
because (i) Kodak failed to seek to assign its position that while the Bankruptcy Code erly undermine the policy of §365 that gives a permitting assignment to take place well after
the Lease at the time it sought to assume permits a debtor to assume and assign a con- debtor broad rights to beneit from beneicial assumption is unfair to landlords. The court
the Lease, (ii) pursuant to §365(d)(4), the tract or lease, the assumption and assignment contracts and thereby maximize the value noted that “[e]ven if it were unfair, the disrup-
time had already expired to assign the Lease, must, in fact, occur at the same time.
of the estate.”
tion of non-debtors’ expectations of proitable
and (iii) the Lease prohibited the proposed ITT irst argued that based on the plain In addition, the court noted that similar to business arrangements is common in bank-
assignment.
reading of the statute, any assignment must §365(k)2, which relieves the estate from any ruptcy proceedings.” Furthermore, the court
occur simultaneous with the assumption post-assignment liability, “post-assumption noted that “ITT has alleged no cognizable
because the Bankruptcy Code in §365(f)(2) assignment allows a Chapter 11 debtor to harm from the assignment in this case beyond
The Court’s Decision in ‘Kodak’
only permits assignment if “the trustee avoid accruing administrative claims under the fact that the [lease] will continue in effect
The court in Kodak overruled ITT’s objec- assumes such contract or lease,” which is stat- a contract whose assumption, necessary with its present terms. In other words, ITT’s
tion and approved the assignment of the ed in the present tense. However, the court because of the deadline in §365(d)(4), proves alleged harm derives from perceived deicien-
Lease. The court noted that the Bankruptcy found that courts have construed §365(f)(2) to be improvident either because of issues cies in the terms of the [lease] rather than any
Code is silent as to whether assumption and to mean that assumption must occur prior to with the contract or because the reorganiza- uncertainty regarding the tenancy.” In addi-
assignment must occur contemporaneously. assignment, not necessarily simultaneously. tion fails.” Accordingly, the court found that tion, there was no dispute that the assignee
The court in Kodak noted that the question
Furthermore, the court noted that other parts
assignment of the Lease would enable Kodak
could provide adequate assur- » Page S11

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