466 B.R. 239
Bankr. S.D.N.Y.2012Background
- Louis J. Freeh, as Chapter 11 Trustee of MF Global, seeks to reject certain executory contracts and to establish procedures for future rejection under 11 U.S.C. § 365 and Bankruptcy Rules 6006 and 9014.
- No objections were filed to the Motion, and a hearing was held on March 6, 2012, after which the Court granted rejection of identified contracts and planned to issue a separate order on that portion.
- The Opinion addresses the Trustee’s proposed Rejection Procedures for future contract rejections, noting deficiencies in the Trustee’s proposal.
- The proposed procedures would file Rejection Notices limited to 100 contracts, serve counterparties, and set deadlines for rejection and claims.
- The Court finds the procedures facially deficient because they lack a mechanism for objections and hearings and fail to serve the Committee, requiring revision.
- The Court will approve rejection of the contracts identified in the Motion, and will approve revised procedures only if objections and hearing provisions are included.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to reject contracts under § 365(a) | Trustee argues rejection is authorized if it benefits the estate. | N/A (no opposition filed). | Proper business judgment standard governs rejection. |
| Authority to establish rejection procedures | Procedures are necessary to avoid burden of individual motions. | N/A | Procedures permissible but must comply with Rules 6006(a) and 9014(a). |
| Deficiencies in proposed Rejection Procedures | Procedures will streamline rejection of contracts. | Procedures lack objections/hearing and notice to Committee. | Procedures inadequate as drafted; require objections/hearing mechanism and notice to Committee. |
| Necessity of objections and hearing in rejection process | Objections not required in the proposed form. | Procedures must include timeline and hearing if objections filed. | Objections and a hearing schedule are required for due process. |
| Scope of revised procedures | Adopt Borders-style procedure with notice and cure for objections. | N/A | Revised procedures must include objection and hearing provisions. |
Key Cases Cited
- In re Borders Grp., Inc., 11-10614 (Bankr.S.D.N.Y.) (2011) (service and hearing requirements for rejection procedures)
- In re BH S & B Holdings LLC, No. 08-14604 (Bankr.S.D.N.Y. 2008) (notification procedures for rejection orders)
- In re Balco Equities Ltd., Inc., 323 B.R. 85 (Bankr.S.D.N.Y. 2005) (business judgment standard for rejection decisions)
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984) (business judgment principle in rejection decisions under § 365)
- In re Gucci, 193 B.R. 411 (S.D.N.Y. 1996) (deference to debtor's business judgment in contract rejection)