Another Blow To Triangular Setoff In Bankruptcy

Law360, New York (October 25, 2011, 3:19 PM EDT) -- On Oct. 4, 2011, Judge James M. Peck of the U.S. Bankruptcy Court for the Southern District of New York ruled in In re Lehman Bros. Inc. (Bankr. S.D.N.Y. Oct. 4, 2011), that a “triangular setoff” does not satisfy the Bankruptcy Code’s mutuality requirement and that the Bankruptcy Code’s safe harbor provisions do not eliminate that requirement in connection with setoffs under financial contracts.

The ruling, which involved a broker-dealer liquidation proceeding under the Securities Investor Protection Act, confirmed speculation that multiple-party setoffs under financial contracts...
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