Law360 Guest Article: Executory Contracts With Multiple Personalities


Rejection of a contract in bankruptcy may not always accomplish a debtor’s goal to shed ongoing contractual obligations and liabilities, especially when dealing with employee benefit plans.


On Oct. 13, 2011, the Fifth Circuit Court of Appeals highlighted this issue in its opinion in Evans v. Sterling Chemicals Inc.[1], regarding the treatment of a pre-bankruptcy asset purchase agreement which contained a provision addressing the debtor-acquirer’s post-closing Employee Retirement Income Security Act retiree benefit plan obligations to its new employees resulting from the transaction.


Several years before it contemplated and ultimately filed for bankruptcy, Sterling Chemicals Inc. purchased a fibers business pursuant to an asset purchase agreement that provided, among other things, for Sterling to offer employment to certain of seller’s employees and to continue post-retirement medical and life insurance benefits as they retired, at seller’s retiree-plan levels.


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