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sections of the Code, which list types of contracts and instruments
exempt from the automatic stay: 11 U.S.C. §§ 362(b)(6), (b)(7),
(b)(17), 546, 556, 559, 560. Related definitions are set forth in 11
U.S.C. § 101. This same class of contracts is defined in the FDI Act
(and FDIC regulations, see 12 C.F.R. 360.5) and under the OLA
authority as "qualified financial contracts." See 12 U.S.C. §
1821(e)(8)-(10) (FDI Act); Dodd-Frank Act, Pub. L. No. 111-203 §
210(c)(8)-(10). Financial industry participants typically refer to
these instruments generally as QFCs. Because safe harbor contracts and
QFCs generally refer to the same types of contract, in the remaining
discussion we use the term "QFC" to refer both to contracts under the
safe harbor provisions of the Code and to the instruments defined as
QFCs under the FDI Act and the Dodd-Frank Act. Although a specific
type of instrument might not be covered under both sets of provisions,
this general reference is consistent with industry practice.
Additionally, the FDI Act and the Dodd-Frank Act treat QFCs in an
analogous manner to the Code, with one notable exception--the ability
of FDIC to prevent the termination of these QFCs by transfer within 1
business day--this will be discussed later in this report.
[19] The Code defines the types of entities that can benefit from the
safe harbor ("counterparty limitations"). See 11 U.S.C. §§ 362(b),
101(22A), (46), (53C).
[20] Ordinarily, an ipso facto clause in an executory contract is
unenforceable against a debtor in bankruptcy due to the automatic
stay, and the exercise of the right to recover property or act against
the property of the debtor is prohibited by the automatic stay. 11
U.S.C. §§ 365(e), 362. In bankruptcy, an executory contract is one in
which both parties to the contract have future performance obligations
that, if unperformed by either party, would result in a material
breach. See Regen Capital I, Inc., v. Halperin, 547 F.3d 484 (2d Cir.
2008); Olah v. Baird, 567 F.3d 1207 (10TH Cir. 2009).
[21] An offset provision enables the nondefaulting party to offset
(net) obligations owed against collateral pledged to the debtor. 11
U.S.C. § 553. The safe harbors include "master netting agreements" for
cross-product netting. 11 U.S.C. §§ 101(38A), (38B), 362(b)(27),
546(j), 561. The debtor and the counterparty presumably would arrive
at a net sum owed either to or from the debtor.
[22] As discussed previously, the Code does not apply to insured
depository institutions. The OLA provisions of the Dodd-Frank Act
state that "the provisions of this title shall exclusively apply to
and govern all matters relating to . . ." an institution placed into
receivership under the OLA authority. Pub. L. No. 111-203 § 202(c)(2).
For QFCs involving a bank in receivership, see 12 U.S.C. § 1821(e)(1),
(8); for those involving an institution in OLA receivership, see Pub.
L. No. 111-203 § 210(c)(1), (8).
[23] See e.g., 12 U.S.C. §§ 1821(c)(8)(E), 4403, concerning the
netting of bilateral netting rights between financial institution
counterparties.
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