Law Commons^™

Should Ad Hoc Committees Have Fiduciary Duties?: Judicial Regulation Of The Bankruptcy Market, David L. Perechocky

David L Perechocky

This article is the first to substantively and directly address the question of whether informal creditor groups in bankruptcy cases could and should have fiduciary duties to other creditors. The rise of activist investors and claims traders in bankruptcy proceedings has significantly changed the bankruptcy process, to much controversy. One particularly contentious topic is the growing presence of informal, or “ad hoc,” creditor groups. Proponents argue that these groups are beneficial by enabling creditors to work together efficiently and effectively, but critics view their actions as disruptive and often unfair to other creditors. A recent decision in the Washington Mutual …

Transaction Consistency And The New Finance In Bankruptcy, David A. Skeel Jr., Thomas Jackson

All Faculty Scholarship

Prior to the enactment of the Dodd-Frank Act last summer, derivatives and repurchase agreements (“repos”) were largely unregulated outside of bankruptcy, and also were exempted from core bankruptcy provisions such as the automatic stay, which prevents creditors from seizing collateral or attempting to collect what they are owed. The Dodd-Frank Act now extensively regulates derivatives outside of bankruptcy, but it left their special treatment in bankruptcy completely untouched.

There is a gap in the debate over this special treatment. To date, neither scholars nor the derivatives industry have fully analyzed the key counterfactual: what would happen if derivatives and repos …

Making Sense Of The New Financial Deal, David A. Skeel Jr.

All Faculty Scholarship

In this Essay, I assess the enactment and implications of the Dodd-Frank Act, Congress’s response to the 2008 financial crisis. To set the stage, I begin by very briefly reviewing the causes of the crisis. I then argue that the legislation has two very clear objectives. The first is to limit the risk of the shadow banking system by more carefully regulating the key instruments and institutions of contemporary finance. The second objective is to limit the damage in the event one of these giant institutions fails. While the new regulation of the instruments of contemporary finance—including clearing and exchange …

Not Out Of The (Fox)Woods Yet: Indian Gaming And The Bankruptcy Code, Emir Aly Crowne, Andrew Black, S. Alex Constantin

UNLV Gaming Law Journal

The recent economic downturn has caused Foxwoods Resort Casino, one of the largest casinos in the world, to seek a restructuring of nearly $1.5 billion in debt. Ordinarily, bankruptcy proceedings are triggered when a typical commercial enterprise defaults on its debt. Under these proceedings, creditors step in and collect monies owed to them before any residual equity is dispersed amongst owners. The rub here is that Foxwoods is owned and operated by the Mashantucket Western Pequot Tribal Nation, a sovereign nation under U.S. federal law. This triggers questions of paramountcy; namely, whether tribunal sovereignty can trump federal bankruptcy law.

These …

In Or Out Of Mortgage Trouble? A Study Of Bankrupt Homeowners, Melissa B. Jacoby, Daniel T. Mccue, Eric M. Belsky

Melissa B. Jacoby

We examine the determinants of missed payments and foreclosure initiation among a national sample of homeowners who filed for personal bankruptcy in 2007, using a rich dataset from the 2007 Consumer Bankruptcy Project.

Credit access had a significant effect on keeping mortgages current across all of our models: access to, and reliance on, credit cards reduced the chance of missed payments and default, increasing the likelihood that bankruptcy could produce a fresh start. Missed mortgage payments also were associated with a substantial drop in income and with the use of a mortgage broker. The probability of foreclosure initiation was lower …

What Determines Professionals’ Bankruptcy Fees: An Empirical Investigation, Gijs Van Dijk, Martin Gramatikov

Martin Gramatikov

Countries have adopted different approaches to compensate bankruptcy trustees for winding up the estate. The approaches vary from state trustees to funding mechanisms where bankruptcy trustees receive a fixed fee, to a system where their fees depend on the size of the assets. Few studies have addressed the cost-effectiveness of the different approaches. This study contributes to this topic by examining the fees of the winding up, including an analysis of the determinants of these fees. After analyzing 289 Dutch bankruptcies consisting of short-term and medium-term cases, we find substantial differences in the mean hourly remuneration fees of bankruptcy trustees. …

The Secondary Market For Gift Cards And The Role Of Corporate Bankruptcy Risk, Kaitlyn A. Desai

CMC Senior Theses

The website, Plastic Jungle, is taking advantage of the rapidly growing gift card phenomena by creating a secondary market that enables consumers to buy, sell, and exchange gift cards online at a discount. This paper examines the relationship between this secondary gift card market and the corporate bankruptcy risk of companies with gift cards listed on the market. When a company issues a gift card, the card is unsecured debt and the cardholder becomes an unsecured creditor to the company. This paper investigates whether the cardholder acts similarly to other unsecured creditors or as someone who is merely holding another …

Bankruptcy As A Corporate Strategy : Implications For Turnover In The Top Management Team And Board Of Directors, Cynthia Lane Krom

Legacy Theses & Dissertations (2009 - 2024)

This paper examines Chapter 11 bankruptcy as a corporate strategy, segregating filings for corporate reorganization in the U.S. from 1998 through 2007 into those due to financial distress (FDB) and those believed to be for risk-management purposes (RMB). Twenty-seven RMB and 199 FDB firms were compared to each other, and to 226 matched non-bankrupt firms. Altman's Z-score clearly differed between the RMB and FDB firms, suggesting that the two are separate constructs financially as well as legally. A subset of 81 firms (the 27 RMB matched to 27 non-bankrupt and 27 FDB) were studied for turnover among the members of …

Assessing The Chrysler Bankruptcy, Mark J. Roe, David A. Skeel Jr.

All Faculty Scholarship

Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred …

Managing Medical Bills On The Brink Of Bankruptcy, Melissa B. Jacoby, Mirya Holman

Melissa B. Jacoby

This paper presents original empirical evidence on financial interactions between medical providers and their patients who go bankrupt. We use a nationally representative sample of people who filed for bankruptcy in 2007 to compare two popular but hotly contested methods of measuring medical burden. By applying both methods to the same filers, we find that nearly four out of five respondents had some financial obligation for medical care not covered by insurance in the two years prior to filing as measured by the survey method. The court record method paints a different picture, with only half of the cases containing …

The Promise And Perils Of Credit Derivatives, Frank Partnoy, David A. Skeel Jr.

All Faculty Scholarship

In this Article, we begin what we believe will be a fruitful area of scholarly inquiry: an in-depth analysis of credit derivatives. We survey the benefits and risks of credit derivatives, particularly as the use of these instruments affect the role of banks and other creditors in corporate governance. We also hope to create a framework for a more general scholarly discussion of credit derivatives. We define credit derivatives as financial instruments whose payoffs are linked in some way to a change in credit quality of an issuer or issuers. Our research suggests that there are two major categories of …

The Past, Present And Future Of Debtor-In-Possession Financing, David A. Skeel Jr.

All Faculty Scholarship

Chapter 11's distinctive post-petition financing rules trace their ancestry back to the origins of large scale corporate reorganization in America in the nineteenth century. In this sense, post-petition financing has always been with us. But in the past decade, the role of the financers has changed. After a century in the shadows, post-petition lenders have stepped onto center stage. The DIP loan agreement has become the single most important governance lever in many large Chapter 11 cases. Why have these formerly bashful financers suddenly started hogging the spotlight? I argue in this article that the generous terms offered to DIP …