Second Circuit Expands Settlement Payment Defenses


By: Tianja Samuel

St. John’s Law Student

American Bankruptcy Institute Law Review Staff 

In In re Enron Creditors Recovery Corp.,[1] the Second Circuit greatly expanded the settlement payment defenses of section 546(e) of the Bankruptcy Code (the “Code”)[2] by rejecting Enron’s attempt to avoid a repayment of debt, because the repayment was structured as a redemption.  This case stemmed from a series of transactions in which Enron used a clearing agency—that merely acted as an intermediary and never took title to the commercial paper—to retire commercial paper before the maturity date. Enron later filed bankruptcy and sought to avoid the more than $1.1 billion it paid, in the 90 days prior to its bankruptcy filing, to retire the commercial paper.[3] 

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