Digital Commons Network^™

The Lease Of All Evils: How A Middle-Ground Approach Can Resolve The Bankruptcy Code Conflict Between Section 363(F) Sales And Section 365(H) Lessee Protections, Kate Christensen

Fordham Journal of Corporate & Financial Law

The Fifth Circuit’s recent decision in In re Royal St. Bistro, LLC has awakened an unsettled issue in the Bankruptcy Code that has divided the bankruptcy community for over two decades. The question examined by the Fifth Circuit was whether a non-debtor lessee with a right to continued possession through section 365(h) of the Bankruptcy Code loses this right if the debtor-lessor can sell its property “free and clear” under section 363(f). While early decisions held that section 365(h) always protects lessees against debtors’ free and clear sales, some subsequent decisions created a circuit split by ruling that section 365(h) …

Silencing Litigation Through Bankruptcy, Pamela Foohey, Christopher K. Odinet

Faculty Scholarship

Bankruptcy is being used as a tool for silencing survivors and their families. When faced with claims from multiple plaintiffs related to the same wrongful conduct that can financially or operationally crush the defendant over the long term—a phenomenon we identify as onslaught litigation—defendants harness bankruptcy’s reorganization process to draw together those who allege harm and pressure them into a swift, universal settlement. In doing so, they use the bankruptcy system to deprive survivors of their voice and the public of the truth. This Article identifies this phenomenon and argues that it is time to rein in this destructive use …

Silencing Litigation Through Bankruptcy, Pamela Foohey, Christopher K. Odinet

Faculty Articles

Bankruptcy is being used as a tool for silencing survivors and their families. When faced with claims from multiple plaintiffs related to the same wrongful conduct that can financially or operationally crush the defendant over the long term—a phenomenon we identify as onslaught litigation—defendants harness bankruptcy’s reorganization process to draw together those who allege harm and pressure them into a swift, universal settlement. In doing so, they use the bankruptcy system to deprive survivors of their voice and the public of the truth. This Article identifies this phenomenon and argues that it is time to rein in this destructive use …

Aligning Nigeria’S Companies And Allied Matters Act With Restructuring Objectives: A Comparative Analysis Using Key Areas Of Interest In Canada’S Insolvency Regime, Unyime Anieti Akpan

Master of Laws Research Papers Repository

Despite the commendable inclusion of restructuring options in Nigeria’s Companies and Allied Matters Act 2020 (“CAMA 2020”), there are still some issues to be addressed in order to fully align CAMA’s restructuring regimes with its goals. This paper undertakes a comparative analysis of the CAMA and the relevant Canadian laws in this respect (particularly the Companies’ Creditors Arrangement Act (“CCAA”) which are aimed at restructuring insolvent corporations. Given the broad nature of a general comparison of insolvency regimes, the approach of this research will be to highlight some key areas of interest under both the CAMA …

Silencing Litigation Through Bankruptcy, Pamela Foohey, Christopher K. Odinet

Scholarly Works

Bankruptcy is being used as a tool for silencing survivors and their families. When faced with claims from multiple plaintiffs related to the same wrongful conduct that can financially or operationally crush the defendant over the long term—a phenomenon we identify as onslaught litigation—defendants harness bankruptcy’s reorganization process to draw together those who allege harm and pressure them into a swift, universal settlement. In doing so, they use the bankruptcy system to deprive survivors of their voice and the public of the truth. This Article identifies this phenomenon and argues that it is time to rein in this destructive use …

Pandemic Hope For Chapter 11 Financing, David A. Skeel Jr.

All Faculty Scholarship

One of the biggest surprises of the recent pandemic from a bankruptcy perspective has been the ready availability of financing. A variety of factors—such as an estimated $2.5 trillion in available funding at the outset of the crisis and the buoyant stock market—may have contributed. In this Essay, I focus on a less widely appreciated factor, a striking shift in the capital structure of many corporate debtors. Rather than borrowing from one group of lenders, debtors now often borrow from multiple groups of diverse lenders. Although the new capital structure complexity has downsides, it also could counteract a longstanding problem …

Taking Stock Of Chapter 11, David A. Skeel Jr.

All Faculty Scholarship

In this Essay, written for a symposium honoring Sam Gerdano, I offer an assessment of current Chapter 11 theory and practice. The most distinctive feature of current Chapter 11 practice is the extent to which the parties now enter into intercreditor agreements, restructuring support agreements and other actual contracts governing their rights and responsibilities. One question raised by the dramatic shift in bankruptcy practice is whether the leading normative theory of bankruptcy, the Creditors’ Bargain Theory, is now obsolete, as some scholars have suggested. The Creditors’ Bargain Theory explains bankruptcy as a solution to coordination problems that might lead to …

Debt’S Emotional Encumbrances, Pamela Foohey

Scholarly Works

This chapter focuses on the role of emotions in the theory and practice of commercial and consumer credit laws, including bankruptcy, in the United States. It assesses knowledge about people’s emotions regarding personal and business financial problems, and evaluates how “money law” systems account for these emotions. This assessment finds that emotions surrounding taking on and being able to pay back debt differ between business leaders and people who shoulder household debt. These differences are traceable in large part to historical understandings of the respectability of incurring debt. This history has shaped the development of bankruptcy, commercial, and consumer credit …

Resolving Corporate Insolvencies In China: The Gap Between Law And Reality, Dr. Zhang Zinian

University of Miami International and Comparative Law Review

This article examines how corporate insolvencies in China, the second largest economy, are handled under the current legislation, the China Enterprise Bankruptcy Law of 2006. Relying on the fresh empirical data arising from the first ten years on the use of China’s three insolvency procedures, reorganization, composition and liquidation, this article reveals the huge gap between the law in the books and the law in action, arguing that the implementation of this law in China perhaps has not achieved the legislative objectives. The constitutional and institutional weaknesses affecting the application of this law are analyzed

Financing Failure: Bankruptcy Lending, Credit Market Conditions, And The Financial Crisis, Frederick Tung

Faculty Scholarship

When contemplating Chapter 11, firms often need to seek financing for their continuing operations in bankruptcy. Because such financing would otherwise be hard to find, the Bankruptcy Code authorizes debtors to offer sweeteners to debtor-in-possession (DIP) lenders. These inducements can be effective in attracting financing, but because they are thought to come at the expense of other stakeholders, the Code permits these inducements only if no less generous a package would have been sufficient to obtain the loan.

Anecdotal evidence suggests that the use of certain controversial inducements — I focus on roll-ups and milestones — skyrocketed in recent years, …

Distorted Choice In Corporate Bankruptcy, David A. Skeel Jr.

All Faculty Scholarship

We ordinarily assume that a central objective of every voting process is ensuring an undistorted vote. Recent developments in corporate bankruptcy, which culminates with an elaborate vote, are quite puzzling from this perspective. Two strategies now routinely used in big cases are intended to distort, and clearly do distort, the voting process. Restructuring support agreements (RSAs) and “deathtrap” provisions remove creditors’ ability to vote for or against a proposed reorganization simply on the merits.

This Article offers the first comprehensive analysis of these new distortive techniques. One possible solution is simply to ban distortive techniques, as several scholars advocate with …

Bankruptcy’S Role In The Covid-19 Crisis, Edward R. Morrison, Andrea C. Saavedra

Faculty Scholarship

Policymakers have minimized the role of bankruptcy law in mitigating the financial fallout from COVID-19. Scholars too are unsure about the merits of bankruptcy, especially Chapter 11, in resolving business distress. We argue that Chapter 11 complements current stimulus policies for large corporations, such as the airlines, and that Treasury should consider making it a precondition for receiving government-backed financing. Chapter 11 offers a flexible, speedy, and crisis-tested tool for preserving businesses, financing them with government funds (if necessary), and ensuring that the costs of distress are borne primarily by investors, not taxpayers. Chapter 11 saves businesses and employment, not …

You've Got Your Mother's Laugh: What Bankruptcy Mediation Can Learn From The Her/History Of Divorce And Child Custody Mediation, Nancy A. Welsh

Nancy Welsh

Due to our current deep economic woes, growing bankruptcy filings, and apparent legislative unwillingness to expand the number of judges, bankruptcy courts are exploring the use of mediation to help resolve adversary proceedings, negotiate elements of reorganizations, and deal with claims that cannot be heard directly in bankruptcy proceedings. In addition, mediation advocates have been consistent in urging greater use of the process to reduce debtors’ and claimants’ costs, bridge the jurisdictional and standing challenges that bankruptcies can pose, and offer claimants the opportunity to be heard and determine their own resolution of claims. At this point, the relatively few …

Reflections On Two Years Of P.R.O.M.E.S.A., David A. Skeel Jr.

All Faculty Scholarship

This Essay draws both on my scholarly and on my personal experience as a member of Puerto Rico’s oversight board to assess the first two years of the Board’s existence. I begin in a scholarly mode, by exploring the question of where P.R.O.M.E.S.A., the legislation that created the Board, came from. P.R.O.M.E.S.A.’s core provisions are, I will argue, the product of two historical patterns that have emerged in responses to the financial distress of public entities in the United States. The first dates back to the 1970s crisis in New York City, while the second is much more recent. If …

Jevic's Promise: Procedural Justice In Chapter 11, Pamela Foohey

Scholarly Works

In this Response to Jonathan Lipson's article, The Secret Life of Priority: Corporate Reorganization After Jevic, 93 Wash. L. Rev. 631 (2018)), I focus on Czyzewski v. Jevic Holding Corp.'s implications for procedural justice and corporate reorganization. In his article, Lipson explicitly links the chapter 11 process with the Bankruptcy Code’s substantive rules about priority, crafting a forceful argument about what procedural values the U.S. Supreme Court sought to uphold when it penned Jevic. In doing so, Lipson expounds on a broader truth about the co-option of corporate reorganization’s process in the name of value preservation. Procedural justice teaches that …

Bankruptcy’S Uneasy Shift To A Contract Paradigm, David A. Skeel Jr., George Triantis

All Faculty Scholarship

The most dramatic development in twenty-first century bankruptcy practice has been the increasing use of contracts to shape the bankruptcy process. To explain the new contract paradigm—our principal objective in this Article-- we begin by examining the structure of current bankruptcy law. Although the Bankruptcy Code of 1978 has long been viewed as mandatory, its voting and cramdown rules, among others, invite considerable contracting. The emerging paradigm is asymmetric, however. While the Code and bankruptcy practice allow for ex post contracting, ex ante contracts are viewed with suspicion.

We next use contract theory to assess the two modes of contracting. …

Lender Discrimination, Black Churches And Bankruptcy, Pamela Foohey

Articles by Maurer Faculty

Based on my original empirical research, in this Article, I expose a disparity between the demographics of the roughly 650 religious congregations that have filed for chapter 11 bankruptcy during part of the last decade and congregations nationwide. Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide.

Why are Black …

Lender Discrimination, Black Churches, And Bankruptcy, Pamela Foohey

Scholarly Works

Based on my original empirical research, in this Article, I expose a disparity between the demographics of the roughly 650 religious congregations that have filed for chapter 11 bankruptcy during part of the last decade and congregations nationwide. Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide.

Why are Black …

A Two-Step Plan For Puerto Rico, Clayton P. Gillette, David A. Skeel Jr.

All Faculty Scholarship

Few still believe that Puerto Rico is capable of meeting all of its financial obligations and continuing to provide basic services. The territory is already in default, and conditions are rapidly deteriorating. Is there a way forward? We think there is. In this short article, we outline a two-part plan for correcting Puerto Rico’s most urgent fiscal and financial problems.

The first step is to create an independent financial control board that has authority over Puerto Rico’s budgets and related issues. Notwithstanding concerns that an externally imposed financial control board (FCB) may interfere with the decision making processes of democratically …

Creditor And Debtor Burdens When Confirming A Chapter 11 Reorganization Plan, Corey Trail

Bankruptcy Research Library

(Excerpt)

In Chapter 11 bankruptcy, after a debtor has submitted a reorganization plan, the creditor has the right to vote on that plan. However, the right to vote on that plan is grounded in the understanding that the creditor will not vote against a debtor’s reorganization plan in bad faith. If a court finds that the creditor rejected the plan in bad faith, the court may “designate” the votes of the creditor that voted against the plan. But the issue of good faith does not solely lie with the creditor’s behavior. Reorganization under Chapter 11 also demands that the debtor …

Governance Reform And The Judicial Role In Municipal Bankruptcy, Clayton P. Gillette, David A. Skeel Jr.

All Faculty Scholarship

Recent proceedings involving large municipalities such as Detroit, Stockton, and Vallejo illustrate both the utility and the limitations of using the Bankruptcy Code to adjust municipal debt. In this article, we contend that, to truly resolve the distress of a substantial city, municipal bankruptcy needs to do more than simply provide immediate debt relief. Debt adjustment alone does nothing to remedy the fragmented decision-making and incentives for expanding municipal budgets that underlie municipal distress. Unless bankruptcy also addresses governance dysfunction, the city may slide right back into financial crisis. Governance restructuring has long been an essential element of corporate bankruptcy. …

Why Do Distressed Companies Choose Delaware? An Empirical Analysis Of Venue Choice In Bankruptcy , Kenneth M. Ayotte, David A. Skeel Jr.

Kenneth Ayotte

We analyze a sample of large Chapter 11 cases to determine which factors motivate the choice of filing in one court over another when a choice is available. We focus in particular on the Delaware court, which became the most popular venue for large corporations in the 1990s. We find no evidence of agency problems governing the venue choice or affecting the outcome of the bankruptcy process. Instead, firm characteristics and court characteristics, particularly a court's level of experience, are the most important factors. We find that court experience manifests itself in both a greater ability to reorganize marginal firms …

Secured Credit In Religious Institutions' Reorganizations, Pamela Foohey

Scholarly Works

Scholars increasingly assume that most businesses enter Chapter 11 with a high percentage of secured debt, which leads to a high percentage of cases ending in the sale of the debtor’s assets under section 363 of the Bankruptcy Code rather than with confirmation of a reorganization plan. However, evidence and discussions about “the end of bankruptcy” center on secured creditors’ role in the reorganizations of very large corporations. The few analyses of cross-sections of Chapter 11 proceedings suggest that secured creditor control is not nearly as omnipresent as asserted and that 363 sales are not as dominant as assumed.

This …

Bankruptcy Survival, Lynn M. Lopucki, Joseph W. Doherty

UF Law Faculty Publications

Of the large, public companies that seek to remain in business through bankruptcy reorganization, only 70% succeed. The assets of the other 30% are absorbed into other businesses. Success is important both because it is efficient and it preserves jobs, communities, supplier and customer relationships, and tax revenues. This Article reports the findings of the first comprehensive study of the division into successful and failed reorganizations. Eleven conditions best predict companies’ survival prospects. First, a company that even hints in the press release announcing its bankruptcy that it intends to sell its business is highly likely to fail. Second, reorganizations …

The Value Of Soft Variables In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company is worth more as a going concern than on a liquidation basis, what creates that additional value? Is it the people, management decisions, the simple synergies of the operating business, or some combination of these types of soft variables? And perhaps more importantly, who owns or has an interest in these soft variables? This article explores these questions under existing legal doctrine and practice norms. Specifically, it discusses the characterization of soft variables under applicable law and in financing documents, and it surveys related judicial decisions. It also considers the overarching public policy and Constitutional implications of …

Secured Credit In Religious Institutions' Reorganizations, Pamela Foohey

Articles by Maurer Faculty

Scholars increasingly assume that most businesses enter Chapter 11 with a high percentage of secured debt, which leads to a high percentage of cases ending in the sale of the debtor’s assets under section 363 of the Bankruptcy Code rather than with confirmation of a reorganization plan. However, evidence and discussions about “the end of bankruptcy” center on secured creditors’ role in the reorganizations of very large corporations. The few analyses of cross-sections of Chapter 11 proceedings suggest that secured creditor control is not nearly as omnipresent as asserted and that 363 sales are not as dominant as assumed.

This …

When Faith Falls Short: Bankruptcy Decisions Of Churches, Pamela Foohey

Scholarly Works

What does a church do when it is about to go bust? Religious organizations, like any business, can experience financial distress. Leaders could try to solve their churches’ financial problems on their own. Perhaps leaders do not view the problems as addressable with law. Or perhaps they do not think, as a moral or spiritual matter, that they should resort to the legal system, such as bankruptcy, to deal with their churches’ inability to pay its debts. Yet about ninety religious organizations seek to reorganize under the Bankruptcy Code every year. This Article relies on interviews with forty-five of these …

The Value Of Soft Variables In Corporate Reorganizations, Michelle M. Harner

Michelle M. Harner

When a company is worth more as a going concern than on a liquidation basis, what creates that additional value? Is it the people, management decisions, the simple synergies of the operating business, or some combination of these types of soft variables? And perhaps more importantly, who owns or has an interest in these soft variables? This article explores these questions under existing legal doctrine and practice norms. Specifically, it discusses the characterization of soft variables under applicable law and in financing documents, and it surveys related judicial decisions. It also considers the overarching public policy and Constitutional implications of …

When Churches Reorganize, Pamela Foohey

Scholarly Works

This Article combines an analysis of documents submitted in connection with Chapter 11 cases filed by religious organizations with the results of in-depth interviews with these organizations’ leaders and their bankruptcy attorneys to assess whether reorganization has the potential to offer an effective solution to these debtors’ financial distress. In doing, it makes three contributions. First, it identifies a subset of organizations that seemed more likely to turn to bankruptcy: small congregationalist and non-denominational churches, often with predominately African-American membership. The Article pinpoints salient questions about these churches’ access to credit and use of bankruptcy for future study. Second, it …

Activist Investors, Distressed Companies, And Value Uncertainty, Michelle M. Harner, Jamie Marincic Griffin, Jennifer Ivey-Crickenberger

Faculty Scholarship

Hedge funds, private equity firms, and other alternative investment funds are frequently key players in corporate restructurings. Most commentators agree that the presence of a fund can change the dynamics of a chapter 11 case. They cannot agree, however, on the impact of this change—i.e., do funds create or destroy enterprise value? This essay contributes to the dialogue by analyzing data from chapter 11 cases in which funds are in a position to influence the debtor’s exit strategy. The data shed light on what such funds might achieve in chapter 11 cases and the potential implications for debtors and their …