What Is the Concept of “Cherry-Picking” in Bankruptcy and How Does Netting Prevent It?

Cherry-picking is the practice where a bankrupt entity's administrator chooses to enforce favorable contracts while rejecting unfavorable ones, maximizing the value for the estate but increasing the counterparty's loss. Close-out netting prevents this by contractually treating all transactions under the ISDA Master Agreement as a single agreement, meaning the administrator must accept or reject all trades together.