The Outer Bounds Of Safe Harbors

Law360, New York (June 25, 2010, 1:03 PM EDT) -- Parties to swap agreements enjoy the protections of “safe harbors” under Sections 560 and 561 of the Bankruptcy Code,[1] which generally permit the setoff of swap obligations even after a counterparty has entered bankruptcy, and even where the setoff of non-swap obligations would be prohibited by the Bankruptcy Code’s automatic stay.

However, a recent decision in the Lehman bankruptcy, involving the setoff rights of a foreign bank,[2] limits the right of setoff under the swap agreement safe harbors by enforcing a timing requirement for setoff found...
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