Create the contract inventory
Identify leases, licenses, supplier agreements, customer contracts, distribution arrangements, service agreements, and commitments involving affiliates. Record the counterparty, term, defaults, payment obligations, assignment restrictions, termination rights, and strategic importance.
Whether an agreement is executory and how it is treated involve legal analysis. A label in the accounting system is not sufficient. Separately identify contracts requiring regulatory or other noncontractual permission.
Assumption and cure
Section 365 establishes requirements for assumption, including cure and adequate assurance in applicable circumstances. Determine the asserted cure amount, disputed charges, nonmonetary issues, and whether future performance is realistically funded.
A business should not assume a burdensome contract merely to preserve continuity for a few weeks. Model the full obligation after assumption and coordinate it with the operating or sale plan.
Assignment and restrictions
The Code addresses assignment and some contractual restrictions, but important exceptions apply. Applicable law, the type of agreement, and the counterparty’s rights can affect whether assignment is possible.
Outside bankruptcy, the governing contract and nonbankruptcy law may require consent. A receiver or assignee should identify its actual authority and obtain necessary approvals before committing to deliver a contract to a buyer.
Rejection and resulting claims
Rejection is treated under the Code’s breach framework; it is not a universal erasure of all property rights associated with the contract. The effect on the counterparty and resulting claim requires careful examination of the relevant provision.
Commercial lease claims and timing issues can implicate additional Code sections and court orders. Separate accrued obligations, post-filing performance, cure, rejection damages, deposits, and guarantees rather than combining them into a single number.
Coordinate the transaction
Prepare a schedule of assumed, assigned, rejected, or otherwise terminated agreements; the cost and conditions of each choice; and the deadlines needed to complete the transaction. Resolve inconsistent asset-sale and contract documents before closing.
Preserve service continuity and rights while decisions are pending. A key license or lease that cannot transfer may be more consequential than a modest change in the headline purchase price.