ARTICLE: The Postpetition, Pre-Rejection, Pre-Assumption Status of an Executory Contract. Skip over navigation
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Copyright (c) 1985 National Conference of Bankruptcy Judges
The American Bankruptcy Law Journal

ARTICLE: The Postpetition, Pre-Rejection, Pre-Assumption Status of an Executory Contract.

Summer, 1985

59 Am. Bankr. L.J. 197

Author

Douglas W. Bordewieck *

Excerpt

Section 365(a) of the Bankruptcy Code 1 states simply that "the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 2 Pursuant to section 1107(a), the chapter 11 debtor in possession ("DIP") may similarly assume or reject any executory contract or unexpired lease of the debtor. 3 Except with respect to certain unexpired leases of nonresidential real property, 4 the DIP generally may decide whether to assume or reject "at any time before the confirmation of a plan." 5 Yet several years will frequently elapse between the date of filing and the date of confirmation. What, then, happens to the executory contract during the often lengthy period prior to its assumption or rejection by the DIP? More particularly, what are the respective rights of the parties to that contract prior to its assumption or rejection? Even more particularly, just who are the parties to that contract? Is the postpetition DIP a party to an executory contract entered into by the prepetition debtor?

Until recently, it was fashionable to conclude that the filing of a chapter 11 petition creates a "new entity," in the form of a DIP, that is not actually a party to those executory contracts of the debtor. In the frequently-cited Kevin Steel case, 6 the Second Circuit relied squarely on the "new entity" theory to resolve an apparent conflict between federal bankruptcy and labor laws. The DIP's union contended that, in view of the ...
 
 
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