Chapter Nineteen. Executory Contracts and Leases After reading this chapter, you will be able to:

Define the term “executory contract” as a specialized form of asset

Define the term “adequate assurance” Describe the procedure that is taken by a party seeking

the assumption or rejection of an executory contract or unexpired lease

List the deadlines contained in the Code to assume an executory contract or unexpired lease

Describe the conditions when assumption of an executory contract or unexpired lease may not be assumed

Executory Contracts

Contracts for which performance remains due to some extent on both sides.

Franchise or license agreements are common executory contracts.

Executory contracts are the subject of Bankruptcy Code Section 365.

An executory contract may be assumed or rejected.

License Agreements

License agreements to operate a business or to market a product line are executory contracts.

The entity issuing the license, the licensor, has a continuing obligation to allow the license holder to use the name and sell products.

The holder of the license, the licensee, has a continuing obligation to provide accountings to the licensor and to pay regular royalties, called license fees, to the licensor.

Adequate Assurance

The providing of adequate protection to a nondebtor party to an executory contract subject to Bankruptcy Code Section 365.

A trustee or debtor-in-possession assuming an executory contract must provide the nondebtor party to the contract with adequate assurance of future performance.

An assignee of an executory contract must also provide adequate assurance of future performance.

Providing adequate assurance includes curing existing defaults and convincing the creditor and the court that future performance will be rendered by the debtor.

Residential and Nonresidential Leases A lease of a residential real property most

commonly exists when the debtor resides in the premises subject to the lease.

A lease is nonresidential in virtually all other situations.

Time Limits for Assumption or Rejection of Executory Contracts or Unexpired Leases

Chapter Nonresidential Leases Executory Contracts/Residential Leases

7 120 days 60 days

9 120 days Before confirmation or prior court order after motion

11 120 days Before confirmation or prior court order after motion

12 120 days Before confirmation or prior court order after motion

13 120 days Before confirmation or prior court order after motion