SDNY Finds Direct Payments to Shareholders in a LBO Are Safe Harbored under Section 546(e) of the Bankruptcy Code (with Mintz Comment)

On November 7, 2012, Judge Lewis A. Kaplan for the United States District Court of the Southern District of New York held that payments made in connection with a leveraged buyout to holders of privately held securities were safe harbored under section 546(e) of the Bankruptcy Code notwithstanding the fact that the payments passed directly from the purchaser to the seller without the use of any financial intermediary. AP Services LLP v. Silva, et al., Case No. 11-03005 (S.D.N.Y. Nov. 7, 2012). The decision comports with the trend among the United States Courts of Appeal, including the Second Circuit, to interpret section 546(e) broadly, and provides clarity regarding the section's application to payments made in connection with a LBO that are wired directly to a shareholder's bank account.

Mintz Comment: AP Services LLP adds to the already robust precedent in the Second Circuit, calling for a broad application of section 546(e) of the Bankruptcy Code. Recipients of direct transfers made to complete a securities transaction should take comfort that, in the Second Circuit such transfers do not have to pass through a financial intermediary in order to qualify for the safe harbor protections of section 546(e) of the Bankruptcy Code.

See: AP Services LLP v. Silva Docket and Memorandum Opinion.