3rd Circ. Ruling Rejecting Ch. 11 Setoff May Provide Alternative

By Sean O’Neal, Lisa Schweitzer and Brandon Hammer (March 29, 2021, 12:16 PM EDT) -- On March 19, a panel of the U.S. Court of Appeals for the Third Circuit held that Section 553 of the U.S. Bankruptcy Code requires strict bilateral mutuality.

As a result, a creditor cannot set off an obligation it owes to a Bankruptcy Code debtor against an obligation that the debtor owes to the creditor's affiliate, regardless of contractual language providing for such a setoff. Accordingly, Section 553 protects only a creditor's ability to set off an obligation it owes to the debtor against an obligation the debtor owes to such creditor.

The court's decision, In re: Orexigen Therapeutics Inc.,[1] is...

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