Your Word is Your Bond: Fifth Circuit Court of Appeals Determines Surety Bonds are Not Executory Contracts Even Through Multiparty Approach in In re Falcon V, LLC

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Following an August 11, 2022 opinion from the Court of Appeals for the Fifth Circuit, certain irrevocable surety bonds will not be considered executory contracts in bankruptcy, even when a court applies a functional multiparty approach to the traditional Countryman definition of an executory contract. In industries like oil and gas, where surety bond programs are often mandatory for market participants, the implication of this decision is that sureties will need to employ extra protective measures to avoid liability to bond obligees after a debtor determines there is no need to continue its surety program.

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