“Assumption at the Effective Date” – The Second Circuit Clarifies When Executory Contracts Are Deemed Assumed and the Consequent Bar to Preference Actions

1. Introduction

In In re: Décor Holdings, Inc., No. 24-1301-bk (2d Cir. Mar. 21, 2025), the United States Court of Appeals for the Second Circuit tackled a deceptively common but doctrinally thorny question in Chapter 11 practice: at what moment is an executory contract “assumed and assigned” when the reorganization plan, asset purchase agreement (“APA”), sale procedures, and confirmation order all speak in concert?

The dispute arose after Décor Holdings (the “Debtors”) sold substantially all assets to RADG Holdings, LLC (the “Purchaser”). United Parcel Service (“UPS”) had provided shipping under a pre-petition Carrier Agreement and received approximately $1.17 million during the 90-day preference period. The Litigation Administrator (“Ryniker”) later sought to claw back those payments under 11 U.S.C. §§547 & 548, contending that the Carrier Agreement had never truly been assumed.

Both the bankruptcy court and the district court found the contract was indeed assumed and that assumption constituted a complete defense to preference liability under controlling Second Circuit precedent. The Court of Appeals now affirms, supplying critical guidance on (i) the operative mechanics of assumption and assignment in a sale context, and (ii) how “adequate assurance” of cure, as memorialised in a confirmation order, satisfies §365(b) even when cure dollars remain unpaid.

2. Summary of the Judgment

The Second Circuit conducted a de novo review and agreed that no genuine dispute of material fact existed: the Carrier Agreement was assumed and assigned once the plan’s “Effective Date” occurred and the sale closed.
Because assumption of an executory contract bars preference recovery on pre-petition payments made under that contract, the panel held that UPS was entitled to summary judgment.
The court rejected three principal debtor arguments: (1) that the confirmation order merely authorized assumption but did not consummate it; (2) that actual execution of a separate assignment document or payment of cure costs was a condition precedent; and (3) that ambiguous wording in the confirmation order made assumption contingent on later acts.

3. Analysis

3.1 Precedents Cited and Their Influence

Springfield Hospital, Inc. v. Guzman, 28 F.4th 403 (2d Cir. 2022) – supplied the standard of review for summary judgment from the bankruptcy court.
Belton v. GE Capital Retail Bank, 961 F.3d 612 (2d Cir. 2020) – reaffirmed plenary appellate review by the Second Circuit over district-court bankruptcy appeals.
In re Wireless Data, Inc., 547 F.3d 484 (2d Cir. 2008) – reiterated the three-part test of §365(b) (cure, compensation, and adequate assurance) and thus framed what “assumption” required.
In re Casse, 198 F.3d 327 (2d Cir. 1999) and In re Aquatic Development Group, 352 F.3d 671 (2d Cir. 2003) – established that a bankruptcy court’s interpretation of its own orders warrants substantial deference.

Collectively, these authorities undergirded two pillars of the panel’s reasoning: (a) that cure can be satisfied by ordered payment, not necessarily contemporaneous payment, and (b) that the bankruptcy judge’s reading of its confirmation order will be left undisturbed absent clear abuse.

3.2 Legal Reasoning of the Court

Textual Harmonisation – The court carefully harmonized four key documents: (i) the APA, (ii) the court-approved Sale Procedures, (iii) the Plan, and (iv) the Confirmation Order (incorporating the Schedule of Assumed Contracts). Each document used mandatory language once closing occurred: the Debtors were “authorized … to assume and assign” the listed contracts and the Carrier Agreement appeared on every operative schedule.
Conditions Precedent Satisfied – The Sale Procedures required both court approval and consummation of the sale. The plan defined court approval as entry of the confirmation order plus the passing of the effective date. Both happened (Closing May 3; Effective Date May 6). Therefore, assumption became automatic by operation of law, needing no further act.
Role of Cure Payment – Paragraph 45 of the confirmation order deemed §365(b)(1) requirements satisfied “upon” the purchaser’s future payment of cure costs. The bankruptcy court construed this as the cure itself: the order created an enforceable obligation on the Purchaser, giving UPS a right of action if unpaid. The appellate panel held that this interpretation was not an abuse of discretion.
No Separate Assignment Document Required – Section 9.2 of the APA required delivery of “Ancillary Documents” if any, but did not condition effective assumption on execution of such documents. The legal act occurred via court order.
Effect on Preference Claims – Under established doctrine, payments made pursuant to an assumed executory contract cannot be avoided as preferences because assumption “cures” the default and validates pre-petition performance. That doctrine foreclosed the administrator’s §§547/548 causes of action.

3.3 Likely Impact on Future Cases

Increased Certainty for Buyers: Purchasers of assets in bankruptcy can rely on schedules attached to confirmation orders; assumption vests automatically when the effective date arrives, even if minor mechanics (final cure dollar or paperwork) trail behind.
Narrower Window for Preference Litigation: Trustees and litigation administrators must scrutinize assumption schedules before filing preference actions; if the governing documents meet the Décor Holdings template, preference claims will be vulnerable to swift summary judgment.
Drafting Implications: Counsel drafting sale procedures or confirmation orders may incorporate explicit “self-executing” language to avoid later litigation. Conversely, creditors opposing assumption must ensure conditions precedent are clearly identified and unmet.
Clarification of “Adequate Assurance”: The opinion reaffirms that a court-ordered obligation on the purchaser satisfies §365(b) without immediate payment—important where cure amounts remain disputed at closing.

4. Complex Concepts Simplified

Executory Contract: A contract in which material obligations remain unperformed on both sides at the time of bankruptcy filing (e.g., service or supply agreements).
Assumption: The estate’s decision to keep (and perform) an executory contract, curing past defaults and binding the estate (or an assignee) to future performance.
Assignment: Transfer of the debtor’s rights and duties under an assumed contract to a third party (here, the Purchaser).
Preference Period: Generally, the 90 days before filing bankruptcy during which certain payments to creditors may be clawed back if they prefer one creditor over others.
Cure Costs: The dollar amount needed to bring a defaulted contract current upon assumption.
Adequate Assurance of Cure: Proof offered to the court that the debtor or assignee will promptly pay cure costs, satisfying §365(b)(1)(A).
Confirmation Order & Effective Date: The court order approving a Chapter 11 plan; the “effective date” is the moment the plan’s terms (including assumptions) become binding after all conditions are satisfied.

5. Conclusion

In re: Décor Holdings crystallises an important operational rule: once the bankruptcy court enters a confirmation order identifying a contract for assumption and all articulated conditions precedent (court approval & sale closing) occur, assumption and assignment are complete, notwithstanding unpaid cure amounts or absent formal transfer documents. This holding fortifies transactional certainty for purchasers, constrains preference litigation, and provides a drafting roadmap for future Chapter 11 sales. While issued as a non-precedential summary order, the court’s reasoning will undoubtedly be persuasive within and beyond the Second Circuit, shaping negotiations in asset sales and informing the strategic calculus of debtors, purchasers, and trade creditors alike.