Feb. 11 (Bloomberg) -- DuPont Co., Smithfield Packing Co. and Stadler’s Country Hams Inc. won a federal appeals court ruling allowing them to challenge a decision by a bankrupt natural gas distributor’s trustee canceling supply contracts.

The court of appeals in Richmond, Virginia, today overturned a bankruptcy judge’s decision and ruled the companies should be allowed to demonstrate that their gas supply contracts were legitimate swap arrangements and not “fraudulent conveyances” because they were made for less than market value.

Following National Gas Distributors LLC’s bankruptcy in January 2006, the trustee sought to void contracts of more than 20 former customers. DuPont and Smithfield argued that their contracts were “commodity forward agreements” that are not voidable under U.S. bankruptcy law. A bankruptcy court ruled in favor of the trustee in May 2007.

“Because the bankruptcy court gave the definition of ‘commodity forward agreement’ a more narrow reading than the statute bears, we reverse,” Judge Paul Niemeyer wrote for the three-judge panel.

The lower court incorrectly assumed that the contracts in this case were simple supply contracts that could be voided by the trustee, Niemeyer said. The contracts contained hedging elements that obliged the customers to buy gas at a fixed price on a future date, regardless of fluctuations in the market, making them more like swap arrangements that are not voidable, the court said.

Karen Fletcher, a spokeswoman for Wilmington, Delaware- based DuPont, didn’t immediately return a call seeking comment.

DuPont fell 13 cents to $23.13 on the New York Stock Exchange. The shares have declined 8.5 percent this year. Smithfield and Stadler’s are closely held.

The case is In Re National Gas Distributors LLC, 07-01205, U.S. Court of Appeals for the Fourth Circuit (Richmond, Virginia).

To contact the reporter on this story: Cary O’Reilly in Washington at caryoreilly@bloomberg.net.

Last Updated: February 11, 2009 18:22 EST