District Court Clarifies Application of Anti-Avoidance Safe Harbor

May 16, 2019

On April 23, 2019, Judge Cote of the U.S. District Court for the Southern District of New York issued an opinion that clarifies when a customer of a bank may be a “financial institution” for purposes of the U.S. Bankruptcy Code’s anti-avoidance safe harbors.

The court held that, because the Tribune Company used a trust company as a depositary and exchange agent to repurchase its own shares, it was itself a “financial institution” for purposes of the Code. As a result, the shareholders who sold their shares back to Tribune could avail themselves of the anti-avoidance protections for settlement payments set forth in Section 546(e) of the Code.

The district court’s decision resolves an issue that the Supreme Court raised in its recent Merit Management opinion and may limit the impact of that decision going forward.