Abstract
Section 546(e) of the Bankruptcy Code contains a notoriously confusing securities safe harbor that protects from avoidance transactions involving financial institutions that are settlement payments or transfers made in connection with a securities contract. Each year, this safe harbor shields from avoidance billions of dollars in transfers that would otherwise benefit unsecured creditors in bankruptcy. Courts, using a variety of often inconsistent approaches, have applied the safe harbor to protect avoidable corporate transactions such as leveraged buyouts and corporate recapitalizations. Because these corporate transactions involve exchanges of cash for securities through financial institutions like banks, courts rely on section 546(e) to shield them from avoidance.