4th Circuit Adopts Hypothetical Approach to Assumption of Executory Contracts

Article by H. Joseph Acosta and Mark G. Douglas

In the April 2003 edition of the Business Restructuring Review (vol. 2, no. 4), we reviewed a decision handed down by a Maryland district court interpreting a provision in the Bankruptcy Code that deals with restrictions on the ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to assume and/or assign certain kinds of unexpired contracts. In RCC Technology Corp. v. Sunterra Corp., the court ruled that section 365(c) of the Bankruptcy Code did not preclude a DIP from assuming a software license agreement that could not be assigned under federal copyright law. In doing so, the district court took a side on a controversial issue that has perpetuated a rift in the judiciary. On one side of the divide stand the Circuit Courts of Appeal for the Third, Ninth and Eleventh Circuits. These courts have held that the statute should be strictly interpreted to prohibit the assumption of any unassignable contract, whether or