BUSINESS LAW NEWS, ISSUE 3, 2022
In Spyglass Media Group v. Cohen (In re Weinstein Co. Holdings LLC), the United States Court of Appeals for the Third Circuit ruled that a work-for-hire contract to produce the 2012 film Silver Linings Playbook in exchange for a share of the film’s future receipts was not an executory contract in the Weinstein Company’s (“TWC”) 2018 bankruptcy case.
An executory contract under section 365 of the Bankruptcy Code may only be assumed and assigned to a buyer if all defaults are cured or the debtor provides adequate assurance of prompt cure. Thus, the determination that a contract is executory can make the purchase of assets from a bankruptcy estate more expensive. Whether a contract is executory can mean the difference between a contract counterparty getting paid in full, versus getting paid much less, or nothing, as a general unsecured creditor of a debtor in bankruptcy.
If a contract is determined to be nonexecutory, the rights of the debtor under the contract may be sold to a buyer pursuant to section 363 “free and clear” of the debtor’s past obligations. Accordingly, a debtor may transfer its rights and obligations under the contract, and existing defaults under the contract need not be cured.05 If a contract is not executory, claims for breach or default existing as of the petition date are rendered unsecured claims against the debtor’s estate.