Assume or reject? Understanding the contract decision in bankruptcy

Begin with the contract and its performance history

A supplier agreement may be central to a business even when its economics no longer work. Section 365 governs assumption and rejection of executory contracts and unexpired leases, subject to important exceptions. Whether a particular agreement qualifies is a legal question; a remaining invoice alone does not answer it.

Collect the complete agreement, amendments, guarantees, notices, and a dated account of each party's performance. Identify services still required on both sides. A licensing agreement, financing commitment, and equipment lease can raise different restrictions despite appearing together on the same contract register.

Assumption is more than a promise to continue

Where a covered default exists, section 365(b) generally requires cure or adequate assurance of prompt cure, compensation for specified losses, and adequate assurance of future performance. Exceptions and special rules matter. The operational team should distinguish an estimate of the cure amount from a judicial determination or an agreed resolution.

Assignment requires a separate inquiry. Section 365(f) provides an assignment framework, while section 365(c) and other provisions impose limits. A clause restricting assignment is relevant, but reading that clause without bankruptcy law may produce the wrong conclusion.

Rejection does not erase the history

Section 365(g) treats rejection as a breach, with timing rules that can affect the resulting claim. It is not a universal power to rescind every right previously granted. The agreement, applicable nonbankruptcy law, and the specific statutory protections must be considered together.

For example, a distributor should record inventory, unpaid charges, and rights already exercised before assuming that rejection requires every commercial relationship to end immediately. Preserve the documents needed to explain that position rather than relying on the label attached to a motion.

A decision file should answer

• What future performance does each party still owe?
• What cure amount is proposed, and what is disputed?
• Is assignment contemplated, and are special restrictions involved?
• What rights and claims would remain after rejection?