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53 U. Louisville L. Rev. 229 (2015)
Shipping Coal through Safe Harbors: Application of the Bankruptcy Code Safe Harbors to Coal Supply Agreements
Daniel I. Waxman*
Abstract
The Bankruptcy Code includes certain “safe harbors” designed to protect the commodities and financial markets from the destabilizing effects of bankruptcy proceedings. Specifically, the Bankruptcy Code limits the application of the automatic stay, its prohibition of ipso facto clauses, and the trustee’s avoidance powers under certain enumerated circumstances. Two of these circumstances should be of particular interest to entities that routinely enter into coal supply agreements: “forward contracts” entered into by “forward contract merchants,” and “swap agreements” (specifically “commodity forward agreements”) entered into by “swap participants.” If a given coal supply agreement is deemed to fit within either of these two classifications, the non-debtor counterparty to the agreement can terminate the agreement, setoff any obligations due under the agreement, and will have an absolute defense to any related preference or constructive fraud claims that may be asserted by the debtor or trustee. Determining whether a particular contract fits within one of these classifications, however, is often difficult, given the paucity of applicable case law (particularly in the coal supply agreement context) and the conflicting statutory text and legislative history surrounding the safe harbors themselves. Notwithstanding any such difficulties, the ability to perform this analysis has taken on additional significance given the expansion of the Bankruptcy Code safe harbors in 2005; the Fourth Circuit Court of Appeals’ controversial decision in In re National Gas Distributors in 2009; and the recent levels of dislocation in the coal, steel, and power-generation industries.
* Daniel I. Waxman is a partner in the Lexington, Kentucky office of Wyatt, Tarrant & Combs, LLP. Daniel is a member of the firm’s Bankruptcy & Creditors’ Rights service team and focuses his practice on the representation of parties-in-interest in out-of-court and court-supervised restructuring proceedings with an emphasis on the banking and energy sectors.