Swedbank AB (PUBL) v. Lehman Brothers Holdings Inc.

445 B.R. 130 (2011)

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Swedbank AB (PUBL) v. Lehman Brothers Holdings Inc.

United States District Court for the Southern District of New York
445 B.R. 130 (2011)

  • Written by Brett Stavin, JD

Facts

Lehman Brothers Holdings Inc. (LBHI) (debtor) petitioned for bankruptcy under Chapter 11 of the Bankruptcy Code. Prior to the bankruptcy, LBHI was a party to a master swap agreement with Swedbank AB (publ.) (Swedbank) (creditor). Several of LBHI’s affiliate companies were also parties to certain master swap agreements with Swedbank, pursuant to which LBHI served as guarantor of the affiliates’ obligations. As part of this arrangement, LBHI maintained a general deposit account with Swedbank. Under all of the master swap agreements, the filing of bankruptcy was a default event pursuant to which the master swap agreements would be terminated and the nondefaulting party would have a right of setoff. After LBHI filed for bankruptcy, Swedbank froze all of LBHI’s assets in its general deposit account, thereby preventing any withdrawal of funds from that account. The freeze, however, did not prevent the further depositing of funds into the account, and LBHI and others did indeed fortuitously deposit approximately $11.7 million into the account postpetition. Swedbank informed LBHI that it intended to set off LBHI’s debts arising from the master swap agreements using the funds in LBHI’s bank account with Swedbank, including the $11.7 million deposited postpetition. The bankruptcy court compelled Swedbank to return the postpetition funds to the bankruptcy estate. Swedbank then appealed to the federal district court, arguing that the Bankruptcy Code’s safe-harbor provisions relating to swap agreements authorized a swap counterparty to use postpetition deposits to offset prepetition debts arising under the swap agreements.

Rule of Law

Issue

Holding and Reasoning (Buchwald, J.)

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