What It Does
For in-house counsel, the label decides what happens to your agreement when the other side files. A contract that qualifies as executory is subject to the debtor's control: the estate can assume it, assign it to a buyer over your objection, or reject it.
A contract that is no longer executory falls outside 11 U.S.C. 365 entirely. The estate may keep any benefit it already holds, and your claim becomes a general unsecured claim alongside other creditors.
A practical test: as of the petition date, write down one obligation you still owe that would be a material breach if you skipped it. Then write down one the other side still owes. Two entries means the contract is executory. One entry means section 365 does not reach it.
Puts your agreement inside the debtor's business judgment, so the decision to keep it or drop it belongs to the estate and the court.
Requires the debtor to cure monetary defaults and compensate the counterparty for actual pecuniary loss before it can assume, under 11 U.S.C. 365(b)(1).
Requires adequate assurance of future performance from the debtor, and from any assignee, as a condition of assumption or assignment.
Treats rejection as a breach that relates back to the moment before the petition under 11 U.S.C. 365(g), which turns your damages into a general unsecured claim.
Suspends termination-on-insolvency clauses under 11 U.S.C. 365(e)(1), so the trigger you drafted is unenforceable at the moment you would invoke it.
Recent chapter 11 plans, including the prepackaged plan WW International confirmed in 2025, put the monitoring burden on counterparties by deeming every executory contract assumed unless it appears on a rejection schedule.
When You'll See It
Leases and equipment schedules: A live lease remains executory while rent and possession duties run. Under section 365(d)(4), a debtor tenant generally must act by the earlier of 120 days after the order for relief or plan confirmation. The court may extend the period 90 days for cause; any further extension requires the lessor's prior written consent.
Software, SaaS, and IP licenses: Section 365(n) lets a licensee retain licensed rights after rejection if it continues royalties and waives setoff and administrative claims. Trademarks fall outside that statute; Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019), held rejection breaches rather than rescinds, so a trademark licensee keeps rights already conveyed.
Supply and services agreements: Section 365(e)(1) blocks termination based on insolvency, a filing, or a trustee appointment, although the clause still operates outside bankruptcy.
Credit agreements and DIP facilities: Section 365(c)(2) separately bars assumption or assignment of a loan or financial-accommodation contract, and section 365(e)(2)(B) preserves that carve-out.
Asset purchase agreements and 363 sales: In a 363 sale, the estate may assign an assumed contract over an anti-assignment clause if cure and adequate assurance are provided. Section 365(c)(1) limits that power where applicable law lets you refuse a replacement performer.
Licenses and services deserve the closest drafting attention. Escrow, a section 365(n) acknowledgment, a named performer, and step-in rights address the risk of rejection or an unwanted substitute counterparty.
Examples
Athersys, Inc. / HEALIOS K.K.
Asset Purchase Agreement
Assumption and assignment covenant
One-Sided
2024
"Sellers shall provide timely and proper written notice of the hearing before the Bankruptcy Court to approve the sale of the Purchased Assets (the "Sale Hearing") to all parties to any Assumed Contracts as set forth on Schedule 1.1.1 and take all other actions reasonably necessary to cause Executory Contracts to be assumed by Sellers and assigned to Buyer pursuant to section 365 of the Bankruptcy Code. At the Closing, Sellers shall assume and assign to Buyer the Executory Contracts that may be assigned by Sellers to Buyer pursuant to sections 363 and 365 of the Bankruptcy Code."
Xtant Medical Holdings, Inc. / Surgalign Holdings, Inc.
Asset Purchase Agreement
Cure cost definition
Mutual
2023
""Cure Costs" means the amounts, as determined pursuant to the Bid Procedures Order, necessary to cure all of the Debtors' monetary defaults, if any, and to pay all actual pecuniary losses that have resulted from such defaults under any executory contracts or unexpired leases and that must be paid pursuant to section 365(b)(1)(A) and section 365(b)(1)(B) of the Bankruptcy Code to effectuate the assumption of such executory contracts or unexpired leases by the Debtors and the assignment thereof to the Successful Bidder."
WW International, Inc.
First Amended Joint Prepackaged Plan of Reorganization
Deemed assumption default
One-Sided
2025
"As of the Effective Date, except as otherwise provided in the Plan, all Executory Contracts and Unexpired Leases shall be deemed assumed (subject to any amendments the parties to such Executory Contract or Unexpired Lease agree upon), and subject to the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, without the need for any further notice to or action, order or approval of this Court"
Intuit Inc. / JPMorgan Chase Bank, N.A.
Credit Agreement
Automatic termination on a bankruptcy event of default
One-Sided
2026
"and in case of any event with respect to the Company described in clause (e) of this Article, the Commitments shall automatically terminate, the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations accrued hereunder and under the other Loan Documents, shall automatically become due and payable, in each case, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company."
Plug Power Inc. / Walmart Inc.
Release Event License Agreement
Section 365(n) acknowledgment
One-Sided
2025
"Plug Power acknowledges that, for the purposes of section 365(n) of the Bankruptcy Code, (a) this Agreement is a license of "intellectual property" as defined in section 101 of the Bankruptcy Code, (b) the Escrow Materials are "embodiments" thereof, (c) this Agreement (and any agreement supplementary hereto, including the Escrow Agreement) shall be subject to section 365(n) of the Bankruptcy Code and (d) Walmart, as licensee of such rights under this Agreement, shall be entitled to retain and may fully exercise all of its rights and elections with respect thereto as permitted under the Bankruptcy Code, subject to Walmart's compliance with its obligations under section 365(n) of the Bankruptcy Code and any other applicable law."
Gogo Business Aviation, LLC / Network Access Associates Limited (OneWeb)
OneWeb Distribution Partner Agreement
Termination on insolvency
Mutual
2022
"This Agreement may be terminated immediately by either Party upon written notice to the other Party in the event such other Party (1) ceases doing business in the ordinary course; or (2) files a petition in bankruptcy or is adjudicated bankrupt or insolvent, or files or has filed against it any petition under the insolvency or bankruptcy Law of any jurisdiction seeking any reorganization, composition, liquidation or similar relief; or (3) makes any general assignment for the benefit of its creditors; or (4) admits in writing its inability to pay its debts generally as they become due."
Negotiate
You want to know within the first week whether your contract survives, who will perform it, and what the estate owes you before it keeps the benefit.
Reconcile the proposed cure amount against your own ledger and file an objection before the deadline in the notice. The confirmation or sale order routinely bars an untimely cure objection.
Press for adequate assurance you can evaluate, meaning the assignee's financials and the name of the entity that will perform, rather than a one-line assurance in a plan supplement.
Keep performing until the court rules and log every post-petition delivery separately, because that performance is the basis for an administrative expense claim rather than a general unsecured one.
Where the identity of your counterparty carries the risk, build the relationship on applicable nonbankruptcy law that excuses you from accepting performance from a substitute. That is the ground 11 U.S.C. 365(c)(1) recognizes.
When you license intellectual property in, put a section 365(n) acknowledgment and an escrow of the embodiments in the agreement, the way Walmart did with Plug Power above.
You want to keep the contracts that carry value, shed the ones that do not, and pay the smallest defensible cure to do it.
Set a designation deadline that runs past closing so you can decide which agreements to assume after you have watched the business operate.
Attach a counterparty-by-counterparty estimate of cure costs to the purchase agreement, which gives you a number to argue from and a record of your good-faith basis for it.
Use a deemed-assumption default in the plan paired with a rejection schedule, so the estate avoids filing a separate motion for every agreement it wants to keep.
Rely on 11 U.S.C. 365(f)(1) to override contractual anti-assignment language, and save the fight for the contracts where 365(c)(1) gives the counterparty a genuine applicable-law objection.
Reject early where the agreement is a net liability, because rejection damages sit as a general unsecured claim under 365(g) while continued performance during the case can generate administrative expense.
Executory-contract review starts with four items: the cure number, the post-closing performer, the anti-assignment clause, and any section 365(n) acknowledgment. GC AI's Playbooks encode those questions across the affected agreements, while GC AI for Word keeps the review inside the document you are marking up.
Red Flags
A termination-on-insolvency clause standing alone, with no escrow, release event, step-in right, or security, gives you a remedy that 11 U.S.C. 365(e)(1) suspends at the moment the risk materializes.
An intellectual property license with no section 365(n) acknowledgment leaves the licensee arguing about the scope of its retained rights. Because 11 U.S.C. 101(35A) leaves trademarks out of the statutory definition, a trademark licensee has to rely on Mission Product Holdings instead of the statute.
A relationship where only one side still owes material performance falls outside section 365. The estate keeps the benefit it already received, and your claim becomes a general unsecured claim with no cure payment and no adequate assurance.
A cure schedule that lists your company at zero with no supporting detail shifts the entire reconciliation burden onto you, on a clock the debtor set. Silence usually operates as consent to that number.
An anti-assignment clause with nothing behind it appears to protect you and delivers little in a sale. Under 11 U.S.C. 365(f)(1), the estate can assign over a contractual restriction unless applicable nonbankruptcy law independently excuses you from accepting performance from a stranger.
FAQs
This content is for informational purposes only and does not constitute legal advice.
