## Facts

- Enron, facing a severe liquidity crisis, filed for Chapter 11 on December 2, 2001.
- In the weeks before filing, Enron used more than $1.1 billion to redeem its outstanding, unsecured, uncertificated commercial paper before maturity.
- The redemptions paid accrued par value, often above then-current market value, benefiting the noteholders compared with other creditors.
- The commercial paper’s terms prohibited early redemption, but Enron executed the payments to address market concerns about its financial condition.
- The payments were processed through standard securities-industry channels, including the Depository Trust Company and broker-dealers.
- After plan confirmation, Enron Creditors Recovery Corp. brought adversary proceedings to avoid and recover the redemption payments as preferences (§ 547) and constructively fraudulent transfers (§ 548), arguing the payments exceeded reasonably equivalent value.
- The bankruptcy court held the payments were not protected by § 546(e); the district court reversed and directed entry of summary judgment for the noteholders; Enron appealed.

## Issues

1. Whether Enron’s prepetition payments redeeming its commercial paper before maturity constituted “settlement payments” under § 741(8) and thus were shielded from avoidance by § 546(e).
2. Whether § 546(e) protects issuer redemptions of the issuer’s own securities, including transactions that are atypical (early, allegedly prohibited, and at above-market prices).
3. Whether a transaction must involve a traditional purchase-and-sale structure or require a clearing intermediary to take title to qualify as a protected “settlement payment.”

## Decision

- The Second Circuit affirmed the district court.
- The court held the redemption payments were “settlement payments” within § 741(8) and therefore fell within § 546(e)’s safe harbor.
- As a result, Enron could not avoid the transfers as preferential or constructively fraudulent under §§ 547 and 548.

## Legal Principles

- For § 546(e), a “settlement payment” under § 741(8) is broadly construed and includes, at minimum, a transfer of cash or securities made to complete a securities transaction.
- Commercial paper qualifies as a “security” for purposes of the safe-harbor analysis.
- § 546(e) is not limited to ordinary-course transactions; atypical features (such as early redemption, contractual prohibitions, or premium pricing) do not remove a securities-related cash transfer from the definition of “settlement payment.”
- The safe harbor does not require a clearing agency or intermediary to take title, and issuer redemptions are not categorically excluded by the statutory text.
- Where the statutory text is clear, legislative history is not necessary to determine § 546(e)’s scope.

## Conclusion

The Second Circuit held that Enron’s prepetition cash payments to redeem its commercial paper were protected “settlement payments” under §§ 741(8) and 546(e), barring bankruptcy avoidance claims seeking to claw back those redemptions as preferences or constructive fraudulent transfers.


Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011)