Setoff Provision News Today

To embed, copy and paste the code into your website or blog: On March 19, in a matter of first impression, the Third Circuit Court of Appeals (Court) held that triangular setoff is not permissible in bankruptcy due to Bankruptcy Code Section 553(a)s mutuality requirement, and that parties cannot evade that requirement by contracting around it. See In re Orexigen Therapeutics, Inc., 990 F.3d 748 (3d Cir. 2021). McKesson Corporation, Inc. (McKesson) and Orexigen Therapeutics, Inc. (Orexigen) wer...

Introduction In a recent decision, In re Orexigen Therapeutics, Inc., No. 20-1136, 2021 U.S. App. LEXIS 8075 (3d Cir. Mar. 19, 2021), the Third Circuit held that triangular setoff arrangements are unenforceable under section 553 of the Bankruptcy Code. A triangular setoff arrangement arises when one party to a contract attempts to not only set off debts owed to another (debtor), but also debts owed by nonparty affiliates of such counterparty. For instance, if A and B are parties to a contrac...