Applicable Bankruptcy Principles. [A] Unenforceability of Ipso Facto Clauses In general, a clause that purports to terminate the agreement or otherwise change a party’s rights automatically upon the filing of a bankruptcy petition (called an “ipso facto” clause) is not enforceable pursuant to section 365(e)(1) of the U.S. Bankruptcy Code.42 A license agreement could, however, contain a valid right to terminate prior to bankruptcy based on likely bankruptcy precursors such as perfor- xxxxx or payment delays or poor financial results.
Applicable Bankruptcy Principles. [A] Unenforceability of Ipso Facto Clauses In general, a clause that purports to terminate the agreement or otherwise change a party’s rights automatically upon the filing of a bankruptcy petition (called an “ipso facto” clause) is not enforceable pursuant to section 365(e)(1) of the U.S. Bankruptcy Code.45 A license agreement could, however, contain a valid right to terminate prior to bankruptcy based on likely bankruptcy precursors such as perfor- xxxxx or payment delays or poor financial results. [B] Assignment and Assumption of Executory Contracts Under section 365 of the Bankruptcy Code, the trustee or debtor-in- possession has the right to either assume or reject any executory contract. A contract is generally found to be executory if both parties have material obligations still to be performed, and as a practical matter, most (but not necessarily all) licenses will be considered executory. Upon assumption, a trustee or debtor-in-possession has the further right to choose retaining the contract or assigning it to a third party for value (regardless of any anti-assignment provision in the contract).
