Deadline to File—Or to Rule? An Ambiguity at the Heart of Section 365(d)(4)

Norton Bankruptcy Law Adviser, June 2019, at 1

14 Pages Posted: 24 Jan 2020

See all articles by Richard Hagerty

Richard Hagerty

Troutman Sanders LLP

Amir Shachmurove

Harvard Law School; University of Pennsylvania, School of Arts and Sciences; Developers Slack; Troutman Sanders LLP; U.S. District Court for Eastern District of New York; U.S. District Court for the Middle District of Louisiana; U.S. District Court for the Southern District of California; U.S. Bankruptcy Court for the Middle District of Florida; U.S. Bankruptcy Court for the Eastern District of New York

Date Written: 2019

Abstract

Section 365 of the Bankruptcy Code (“Code”), which focuses on the post-petition continuation of pre-petition contractual relations, controls the assumption and rejection of executory contracts and unexpired leases by a trustee or debtor-in-possession (“DIP”) in all bankruptcy cases. Perhaps recognizing this bequest’s potential for abuse, Congress required assumption within 60 days in liquidation cases, subject to a court-granted extension. Simultaneously and deliberately, Congress did not place a time limit on this process for the Code’s rehabilitation cases. In the years after its enactment, § 365 became one of the “most powerful tools” in any bankruptcy trustee’s arsenal, one constrained by time’s passage in Chapter 7 cases but, at first, unaffected by its march in Chapter 11 ones.

Reacting to this textual divergence, Congress enacted two post-1978 emendations to the Code which created today’s § 365(d)(4). In 1984, Congress first imposed a temporal limitation on § 365(a) in Chapter 11 cases. This limitation was subsequently overhauled in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Pursuant to these amendments, § 365(d)(4) now provides that “an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, . . . if the trustee does not assume or reject the unexpired lease” by the earlier of “the date that is 120 days after the date of the order for relief” or “the date of the entry of an order confirming a plan,” with extensions to be granted in accordance with the process set forth in § 365(d)(4)(B). By virtue of this language, although the process of assumption or rejection always involves two steps as a practical matter — the trustee must first file a motion, and a bankruptcy court must weigh that motion’s merits and approve or deny assumption or rejection — § 365(d)(4) places a deadline, definite yet elastic, on its progression.

Note: Posted with permission from Norton Bankruptcy Law Adviser, August 2019 issue. Copyright © 2019 Thomson Reuters/West. For more information about this publication, please visit www.legalsolutions.thomsonreuters.com.

Keywords: Section 365, bankruptcy, chapter 11, chapter 7, BAPCPA, reorganization, liquidation, Section 365(d)(4), prompt, rejection, assumption, Toys-R-Us

JEL Classification: K00, K10, K11, K19, K20, K23, K29, K30, K35, K39, K40, K41, K42, K49

Suggested Citation

Hagerty, RIchard and Shachmurove, Amir, Deadline to File—Or to Rule? An Ambiguity at the Heart of Section 365(d)(4) (2019). Norton Bankruptcy Law Adviser, June 2019, at 1. Available at SSRN: https://ssrn.com/abstract=3517869

RIchard Hagerty

Troutman Sanders LLP ( email )

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Amir Shachmurove (Contact Author)

Harvard Law School ( email )

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University of Pennsylvania, School of Arts and Sciences

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