Law Commons^™

Cross-Border Insolvency Problems: Is The Uncitral Model Law The Answer?, S. Chandra Mohan

Research Collection Yong Pung How School Of Law

This paper examines the impact that the UNCITRAL Model Law on Cross-border Insolvency has had on States in the light of the central problems often associated with transnational insolvencies. Despite the accolades that it has received, the Model Law has been adopted in only 19 countries in the last 15 years and that too in many different ways. If the number of adoptees and the rather conditional acceptance of the Model Law’s provisions represent a lack of international enthusiasm for adopting the Model Law, what are the reasons for this? The paper concludes by asking whether the UNCITRAL Model Law …

Water Bankruptcy, Christine A. Klein

UF Law Faculty Publications

Many western states are on the verge of bankruptcy, with debts exceeding assets. And yet, they continue to take on additional debt through contracts and other commitments. Although this distress sounds like an outgrowth of the 2008 recession, this crisis involves water, not money. In particular, the problem concerns the western prior appropriation system of water law, which allocates the right to use water under the priority principle of “first in time, first in right.” In many states, the system is so “over-allocated” that it promises to deliver annually much more water than nature provides. The crisis will deepen as …

Defending The Current State Of Section 363 Sales, Jared A. Wilkerson

W&M Law Student Publications

Notwithstanding the priority-based controversy following the Chrysler and GM § 363(b) sales, value is the central dispute dominating the asset sale debate. Given the mounting data purporting to show that sales harm junior creditors by producing low value, I confront two issues in this article. First, I address the depth and breadth of the low value phenomenon for junior creditors, concluding that(a) although sales appear to cut deeply into creditor recoveries, causation has yet to be shown; and (b) sales have not, contrary to the predictions of some scholars, overtaken reorganization. Second, using qualitative and quantitative analysis, I challenge four …

Dynamic Resolution Of Large Financial Institutions, Thomas H. Jackson, David A. Skeel Jr.

All Faculty Scholarship

One of the more important issues emerging out of the 2008 financial crisis concerns the proper resolution of a systemically important financial institution. In response to this, Title II of Dodd-Frank created the Orderly Liquidation Authority, or OLA, which is designed to create a resolution framework for systemically important financial institutions that is based on the resolution authority that the FDIC has held over commercial bank failures. In this article, we consider the various alternatives for resolving systemically important institutions. Among these alternatives, we discuss OLA, a European-style bail-in process, and coerced mergers, while also extensively focusing on the bankruptcy …

Were "It" To Happen: Contract Continuity Under Euro Regime Change, Robert C. Hockett

Cornell Law Faculty Working Papers

One way or another, the European Monetary Union (EMU) is apt to endure. The prospect of continuation under the precise contours of the regime as we presently find it, however, is anything but certain. Hence many investors and other actual or prospective contract parties are likely to remain skittish until matters grow clearer. This skittishness, importantly, can itself hamper the prospect of expeditious European recovery. Addressing particular sources of ongoing uncertainty about EMU prospects can itself therefore aid in the project of recovery.

This Essay accordingly aims to impose structure upon one particular, and indeed particularly complex, source of uncertainty …

States Of Bankruptcy, David A. Skeel Jr.

All Faculty Scholarship

In the past several years, many states’ financial condition has been so precarious that some observers have predicted that one or more might default. As the crisis persisted, a very unlikely word crept into these conversations: bankruptcy. Should Congress provide a bankruptcy option for states, or would bankruptcy be a mistake? The goal of this Article is to carefully vet this question, using all of the theoretical, empirical and historical tools currently available. The discussion is structured as a “case” for bankruptcy, rather than an “on the one hand, on the other hand” assessment. But it seeks to be scrupulously …

Cross-Border Bankruptcy And The Cooperative Solution, Leah Barteld

Student Articles and Papers

Cross-border bankruptcy continues to be an important topic within bankruptcy regimes worldwide. As more corporations find themselves interacting in a market without the confines of geographic borders, countries need to adapt their regulatory schemes to be able to properly handle an orderly liquidation or reorganization without an adverse impact on the economy. This paper discuses the challenges of a cross-border bankruptcy regime that would be effective and proposes a cooperative solution for increasing coordination among insolvency proceedings. As a result of increasing cooperation among jurisdiction in light of the recent and ongoing financial crisis, reform within the bankruptcy regimes around …

Still Chasing Chimeras But Finally Slaying Some Dragons In The Quest For Consumer Bankruptcy Reform, 25 Loy. Consumer L. Rev. 1 (2012), Jason Kilborn

UIC Law Open Access Faculty Scholarship

Consumer bankruptcy systems in Europe and the United States have witnessed especially robust and dynamic development during the past decade. The ever-rising volume of seeking entry to these systems now allows for cross-systemic comparisons of substantially differing “markets” for the relief that these systems offer. In particular, the distinct trend toward greater efficiency seen in other financial markets can be increasingly observed in most consumer bankruptcy regimes, with some notable exceptions. In this context, market performance can be gauged in part by the degree to which systems offer efficient and effective relief as a stimulus to deploying available debtor resources …

Business Insolvency And The Irish Debt Crisis, 11 Rich. J. Global L. & Bus. 407 (2012), Paul B. Lewis

UIC Law Open Access Faculty Scholarship

Among the volume of material written about the Irish debt crisis and its impact over the past few years, strikingly little has been written about the ability to save a financially distressed company under Irish law and whether corporate restructuring could have mitigated some of the financial damage to Irish companies, particularly those in the property and construction industries. There is a reason for this. The number of filings under the Examinership law - the rough equivalent of Chapter 11 in the United States - remained small and relatively constant during both the recent boom and the more immediate bust …

The Consumer Bankruptcy Fee Study: Final Report, Lois R. Lupica

Faculty Publications

The Consumer Fee Study’s primary objective is to identify and monetize these costs of bankruptcy access through the analysis of quantitative and qualitative data gathered from court dockets and from professionals working within the bankruptcy system. We began the quantitative section with the hypothesis that following BAPCPA’s enactment, the cost of accessing the consumer bankruptcy system increased. We set out to determine the degree of increased costs, as well as to identify the specific policies and practices affecting these costs. Additionally, we endeavored to evaluate, with specificity, how diverse local procedures and guidelines impact the system’s processes and outcomes. Our …

Same-Sex Married Debtors May File A Joint Petition For Bankruptcy, Jennifer Arcarola

Bankruptcy Research Library

(Excerpt)

Legally married couples may file a petition for bankruptcy jointly under section 302(a) of the Bankruptcy Code (“the Code”). The choice to file jointly is limited to only include married spouses, excluding partners and people in civil unions. Across virtually all jurisdictions, courts have explicitly rejected joint filings under section 302(a) filed by unmarried debtors. For example, an adult child cannot file for bankruptcy jointly with a parent, nor can a cohabiting unmarried couple file together. While the Bankruptcy Code does not purport to define who may qualify as a married couple, the Defense of Marriage Act (“DOMA”) does, …

Is Your Retainer Safe?: How In Re Two Gales Ensures That Bankruptcy Professionals Keep Their Retainer Fees, Jonathan Abramovitz

Bankruptcy Research Library

(Excerpt)

In a decision that bankruptcy professionals are certain to applaud, the United States Bankruptcy Appellate Panel of the Sixth Circuit held that bankruptcy courts must not order disgorgement of attorneys’ retainers in bankruptcy cases if the attorney has perfected a lien in the retainer under state law. Prior to In re Two Gales, some bankruptcy courts had justified disgorgement as necessary to comply with 11 U.S.C. § 726(b), which requires administrative claimants to be compensated through pro rata distributions upon administrative insolvency. In re Two Gales confirmed what some other bankruptcy courts have already held: section 726(b) is …

Who Has Standing To Object To A Debtor’S Reorganization Plan? Analyzing Section 1128(B)’S “Party In Interest” Bankruptcy Standing Requirement And The “Persons Aggrieved” Appellate Standing Test, Michael Battema

Bankruptcy Research Library

(Excerpt)

In a decision with important implications for parties listed in debtor reorganization plans, the United States Court of Appeals for the Third Circuit recently reiterated its position that section 1128(b) of the Bankruptcy Code (the “Code”) should be interpreted broadly to permit any listed party whose rights might be implicated by a debtor’s reorganization plan the ability to object to the plan’s terms in bankruptcy court. In its decision, the Third Circuit distinguishes between a party’s right to object to a debtor’s confirmation plan in bankruptcy court (“Bankruptcy Standing”) versus that party’s ability to appeal the debtor’s confirmation ruling …

An Exercise In Economics: Determining “Value” Under § 548 Of The Bankruptcy Code, Gregory R. Bruno

Bankruptcy Research Library

(Excerpt)

Determining whether a debtor receives value for a constructively fraudulent prepetition transfer under section 548 of the Bankruptcy Code can prove troublesome when a debtor receives only an indirect, intangible benefit. Section 548 allows a bankruptcy trustee to avoid and recover a debtor’s prepetition transfers for which the debtor did not receive “reasonably equivalent value.” However, judicial interpretation of the term “value” has greatly limited the kinds of benefits to the debtor that might qualify.

Gold v. Marquette (In re Leonard) both illustrates the limitations that courts have placed on the term “value” for purposes of section …

Trustees Beware: Reviewing The Circuit Split On Bankruptcy Trustee Personal Liability, Barry Z. Bazian

Bankruptcy Research Library

(Excerpt)

Imagine that you have been appointed to serve as a trustee in a bankruptcy case. As the “representative of the estate,” one of your responsibilities is to properly manage the estate’s assets. You decide to invest the estate’s funds in several risky penny stocks, relying on minimal research you performed online. Unfortunately, these investments quickly decrease in value, substantially diminishing the value of the estate. Now, of course, the debtor and his creditors are angry and want to sue you for mismanaging the estate’s funds. Can you be held personally liable? In other words, will you have to pay …

In Re Awal Bank: Expanding Ability To Avoid Setoff In Chapter 15 Bankruptcy Cases, Jacob Chase

Bankruptcy Research Library

(Excerpt)

Foreign bankruptcy representatives seeking to avoid setoff of fund transfers pursuant to section 553 of the Bankruptcy Code may enjoy more flexible standards than ever before. In a recent decision by the United States Bankruptcy Court of the Southern District of New York, In re Awal Bank, Judge Gropper allowed the foreign representative for Awal Bank to avoid a setoff by HSBC even though the bank had not filed a plenary chapter 7 or 11 bankruptcy proceeding within 90 days of the setoff, holding that Awal Bank’s filing under Chapter 15 within the relevant 90 day look-back period …

In Re J.J. Re–Bar Corp.: The Application Of The Anti-Injunction Act, Eric Dostal

Bankruptcy Research Library

(Excerpt)

The Anti–Injunction Act is a provision of the U.S Code that prohibits any court from impeding the Internal Revenue Service from collecting an assessed tax. The Circuits have applied the Anti–Injunction Act to bankruptcy proceedings in two different ways. When the IRS seeks to assess a tax against a corporate fiduciary of a bankrupt corporation, as when the IRS tries to collect a penalty associated with unpaid payroll taxes, the Circuits have held that the Anti–Injunction Act allows the IRS to collect the funds it is entitled to without any interference. However, when the IRS attempts to collect unpaid …

Avoidability Of Foreclosure Sales Under Section 547 Of The Bankruptcy Code, Adam Cohen

Bankruptcy Research Library

(Excerpt)

Should foreclosure sales that comply with state law be subject to avoidance under federal bankruptcy law? In BFP v. Trust Resolution Corp., the Supreme Court said no, at least when dealing with alleged section 548 fraudulent conveyances, as doing so would, inter alia, undermine state interests and raise substantial federalism concerns. Some courts have taken this reasoning and applied it to section 547 preferences as well, while others feel that the plain language of section 547 prohibits such an application. One recent case in the latter category is In re Whittle Development, Inc.

In general, transfers are …

The Challenge Of Retaining Interest For Original Equity Owners, Michael Harary

Bankruptcy Research Library

(Excerpt)

Bankruptcy reorganization plans can pose a challenge for old equity shareholders wanting to retain their interests in a reorganized entity, Under the Bankruptcy Code these plans give most creditors a higher priority to receive equity in the reorganized company before shareholders. However, shareholders have different options that can aid them in retaining interests in the company; one such option is the contribution of new value that is subject to market evaluation.

Recently, in H.G. Roebuck & Son, Inc. v. Alter Communications, Inc., (“Roebuck”), the United States District Court for the District of Maryland reversed the bankruptcy …

Three Approaches To Applying 11 U.S.C § 546(E)’S “Safe Harbor” To Private Lbos, Shlomo Lazar

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code gives a trustee and a debtor-in-possession the authority to avoid fraudulent transactions. However, 11 U.S.C. § 546(e) limits the trustee’s avoiding powers by providing a safe harbor for “settlement payments.” Generally, a “settlement payment” is a payment of cash or securities made to complete a securities transaction. For example, money that an individual pays to a stockbroker to buy publicly traded shares is a settlement payment. A recent issue that has arisen is whether payments made to former shareholders in connection with a private leveraged buyout (LBO) constitute a “settlement payment.”

Depending on which jurisdiction a …

Forward Contracts Preference Exception Broadly Construed, Brian King

Bankruptcy Research Library

(Excerpt)

Derivative transactions and financial contracts are a critical component of the United States economy. There are three main types of derivative contracts executed in our markets: futures, options and forward contracts. Each of these instruments derives value from an underlying security or resource with focus on a possible change in its future value. These instruments can be used as speculative investments, as hedges on securities already owned, or as a means of mitigating risk on volatility within a specific industry. An essential attribute of trading in these derivatives is “the ability of the parties to value their transaction on …

Exploring The Enforceability Of Pre-Petition Hindrance Mechanisms To Prevent Bankruptcy, Joshua Eisenson

Bankruptcy Research Library

(Excerpt)

Insolvency and bankruptcy pose great risks to a creditor’s investments. Although business entities can never be truly bankruptcy-proof, certain techniques are commonly deployed to make debtors as bankruptcy-remote as possible. Creditors and practitioners have devised and employed a multitude of “hindrance mechanisms” to significantly discourage bankruptcy petitions, while not directly causing debtors to waive their right to voluntarily file for bankruptcy. Creditors will often require debtors to accept these contractual provisions to make it more difficult, or practically impossible, for debtors to declare bankruptcy. However, as a rule of law, courts will render a hindrance mechanism per se invalid …

Assumption Under Section 365(C)(1) Creates Uncertainty For Debtors, Heather Hili

Bankruptcy Research Library

(Excerpt)

The assumption and assignment of executory contracts raises many issues in Chapter 11 bankruptcies. One issue is whether the trustee can assume an executory contract, thus forcing the non-debtor party to accept performance from the debtor-in-possession. Section 365(c)(1) of the Bankruptcy Code (“Code”) attempts to resolve this issue by providing that a trustee may not assume or assign an executory contract when applicable law would excuse the non-debtor party from accepting performance from someone other than the debtor-in-possession. But courts relying on Section 365(c)(1) to resolve this issue have interpreted it in different ways, creating a split among the …

Judicial Enforcement Of Default Interest Rates, Michael Lutfy

Bankruptcy Research Library

(Excerpt)

Although secured creditors use default interest rates to protect their security interest throughout the bankruptcy process, courts are not required to enforce those contractual provisions. Secured creditors can legitimately use default interest rates to provide an offset for the “costs and delay of the bankruptcy process.” Equitable considerations may require judicial nullification of default interest rates. Inequitable default interest rates directly contradict the policy goals of bankruptcy. The difficulty in determining the reasonableness of default interest rates results from competing policy interests within bankruptcy. Courts favor enforcing contractual obligations and preserving rights inside of bankruptcy, as they would have …

In Re Toft; Section 1506 Public Policy Exception Trumps General Grant Of Comity, Malerie Ma

Bankruptcy Research Library

(Excerpt)

Chapter 15 of the Bankruptcy Code allows courts in the United States to recognize the judgments of foreign courts on the basis of comity. Chapter 15's “public policy” exception, however, prevents recognition of such judgments if they are “manifestly contrary to the public policy of the United States.” In re Toft is one of the few cases to deny relief on the basis of the public policy exception. While courts will continue to apply this exception narrowly, In re Toft shows that the public policy exception can be a powerful impediment to requests for aid in foreign insolvency proceedings. …

In Re Pichhi; Modifications Of Multi-Family Home Mortgages, Patrick Mcburney

Bankruptcy Research Library

(Excerpt)

In a decision with important implications for lenders in the real estate business, the Bankruptcy Appellate Panel for the First Circuit determined that debtors can strip down a creditor’s under-secured claim in a multi-family dwelling to the appraised value of the property. While the Bankruptcy Technical Corrections Act of 2010 (“BTCA”) were in effect at the time of the decision, the panel decided the issue under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) because both parties argued the issue under the BAPCPA definitions and declined to raise the applicability of BTCA to the issue. Specifically …

The Evolution Of The Settlement Payment Defense?, Tianja Samuel

Bankruptcy Research Library

(Excerpt)

Each year U.S. bankruptcy courts decide hundreds of cases in which debtors, or their trustees, seek to avoid preferential payments. In many of these cases, creditors successfully defend themselves by convincing the court that a statutory safe harbor provision is applicable. The settlement payment defense is one safe harbor provision that—although frequently utilized by creditors—has consistently raised questions about its own scope and applicability. The Second Circuit answered some of these questions, for the first time, in In re Enron Creditors Recovery Corp. In what some believe was an expansive decision, the court held that the settlement payment …

Discrimination In Hiring Based On Past Bankruptcy Filing Allowed For Private Employers, Megan Quail

Bankruptcy Research Library

(Excerpt)

Section 525 of the Bankruptcy Code protects employees who currently are or have previously been in bankruptcy from discrimination. It contains two subsections. Subsection (a) states that government employers may not deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy solely because of that filing. Subsection (b) provides that no private employer “may terminate the employment of, or discriminate with respect to employment against” individuals for declaring bankruptcy. The salient difference is that the section applying to private employers does not mention denial of employment in its list …

Bankruptcy Courts’ Power To Recharacterize Debt Claims As Equity, David Saponara

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code enables bankruptcy courts to take certain measures to facilitate the claims process and priority system. For example, section 502(b)(1) enables bankruptcy courts, upon objection, to disallow creditors’ claims based on applicable law or an agreement between the creditor and the debtor, and section 510(c) enables bankruptcy courts to equitably subordinate claims of creditors that engaged in inequitable conduct such that subordination would be appropriate to remedy any injury suffered by another creditor. Whether bankruptcy courts may recharacterize debt claims as equity, however, is not explicitly addressed in the Bankruptcy Code. Because of this, recharacterization analysis has …

In Re Shamus Holdings, Llc And The Automatic Stay, Matthew Silverman

Bankruptcy Research Library

(Excerpt)

The automatic stay is recognized as one of the fundamental protections provided by bankruptcy law. The automatic stay prevents creditors from taking almost any type of formal or informal action against the debtor, including commencing or continuing foreclosure actions. There are, however, certain exceptions to the automatic stay, exceptions that permit the creditor to take action against the debtor despite the pendency of the bankruptcy proceeding. This memorandum focuses on one such exception, contained in section 362(b)(3) of the Code, and the effect courts have held it to have on the automatic tolling provision of the Bankruptcy Code. The …