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ARTICLE · 22 FEBRUARY 2011

Additional Set-Off Rights Against Cash Collateral Accounts - Better Be Clear

Stikeman Elliott LLP
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I do love the food for thought these Lehman Brothers bankruptcy cases provide. While they often turn (as this one does) on specific provisions of U.S. bankruptcy or state law, they do remind us of the importance of stating very clearly what is or is not permitted, especially when it comes to set-off.

CanadaFinance and Banking
Stikeman Elliott LLP
Stikeman Elliott LLP
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Bank of America N.A. v. Lehman Brothers Holdings Inc. and Lehman Brothers Special Financing Inc. 439 B.R. 811 (2010) (U.S. Bankr. Ct., S.D.N.Y.)

I do love the food for thought these Lehman Brothers bankruptcy cases provide. While they often turn (as this one does) on specific provisions of U.S. bankruptcy or state law, they do remind us of the importance of stating very clearly what is or is not permitted, especially when it comes to set-off. Although the case considers the Bankruptcy Code netting safe-harbour and security interests in cash collateral accounts, it is in essence a case about the availability of common law set-off in the context of cash collateral arrangements.

As you may know by now, BOA was found by Judge Peck to have breached the bankruptcy stay by setting-off an amount LBHI owed to it as guarantor of terminated swap contracts entered into between BOA and LBSFI against cash collateral credited to an LBHI account at BOA. The main question was

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