Law Commons^™

Modular Bankruptcy: Toward A Consumer Scheme Of Arrangement, John A. E. Pottow

Law & Economics Working Papers

The world of international bankruptcy has seen increasing use of the versatile scheme of arrangement, a form of corporate reorganization available under English law. A key feature of the scheme is its modularity, whereby a debtor can restructure only a single class of debt, such as bond indentures, without affecting other debt, such as trade. This is the opposite of chapter 11 of the U.S. Bankruptcy Code’s comprehensive reckoning of all financial stakeholders. This article considers a novel idea: could the scheme be transplanted into the consumer realm? It argues that it could and should. Substantial benefits of more individually …

The Dialogic Aspect Of Soft Law In International Insolvency: Discord, Digression, And Development, John A. E. Pottow

Law & Economics Working Papers

Soft law is on the ascent in international insolvency, seeming now to occupy a preferred status over boring old conventions. An arguably constitutive aspect of soft law, which some contend provides a normative justification for international law generally, is its "dialogic" nature, by which I mean its intentional exposure to recursive norm contestation and iterative development: soft law starts a dialogue. The product of that dialogue, on a teleological view, may well be hard law. In the international insolvency realm, that pathway is through (soft) model domestic legislation that aspires toward enactment as municipal law. The happy story is that …

Singapore Company Law And The Economy: Reciprocal Influence Over 50 Years, Vincent Ooi, Cheng Han Tan

Research Collection Yong Pung How School Of Law

A strong reciprocal relationship has existed between Singapore Company Law (SCL) and the economy since Independence in 1965. Swift Parliamentary responses to economic events and successful implementation of Government policies has made it possible to clearly attribute cause and effect to statutory amendments and economic events in turn, proving the reciprocal relationship between the two. The first theme of this article seeks to explain the fundamental characteristics of SCL that have resulted in such an unusually strong reciprocal relationship: (1) Autochthonous nature of SCL; (2) Responsive nature of legislation; and (3) Government control at multiple levels of implementation. The second …

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 …

A No-Tribunal Sdrm And The Means Of Binding Creditors To The Terms Of A Restructuring Plan, Charles W. Mooney Jr.

All Faculty Scholarship

The paper addresses two discrete but related and essential attributes of a sovereign debt restructuring mechanism (SDRM). It first considers the merits and feasibility of an SDRM that would provide a procedure for proposing and adopting a restructuring plan for a sovereign debtor’s debt which would not involve any tribunal or administrator (a No-Tribunal SDRM). The No-Tribunal SDRM would undertake the restructuring as if the sovereign debtor and its creditors were subject to the Model CAC regime. In addition to embodying a novel and interesting structure for an SDRM—and one that eliminates the difficult hurdle of identifying a satisfactory tribunal—adoption …

A Framework For A Formal Sovereign Debt Restructuring Mechanism: The Kiss Principle (Keep It Simple, Stupid) And Other Guiding Principles, Charles W. Mooney Jr.

All Faculty Scholarship

Given the ongoing work on a multilateral restructuring process for sovereign debt in the UN, consideration of the content and implementation of a sovereign debt restructuring mechanism (SDRM) is timely. The framework and content of the SDRM proposed here differs from earlier proposals in several important respects. For the classification and supermajority voting of claims in the approval a restructuring plan, it would mimic the structure and operation of the model collective action clauses (Model CACs) proposed by the International Capital Markets Association. Restructuring under a qualified sovereign debt restructuring law (QSDRL) would be guided by four principles: (i) observe …

Bankruptcy Or Bailouts?, Kenneth Ayotte, David Skeel

Kenneth Ayotte

The usual reaction if one mentions bankruptcy as a mechanism for addressing a financial institution’s default is incredulity. Those who favor the rescue of troubled financial institutions, and even those who prefer that their assets be promptly sold to a healthier institution, treat bankruptcy as anathema. Everyone seems to agree that nothing good can come from bankruptcy. Indeed, the Chapter 11 filing by Lehman Brothers has been singled out by many the primary cause of the severe economic and financial contraction that followed, and proof that bankruptcy is disorderly and ineffective. As a result, ad-hoc rescue lending to avoid bankruptcy …

What Is A Lien? Lessons From Municipal Bankruptcy, David A. Skeel Jr.

All Faculty Scholarship

From the outset of Detroit’s bankruptcy, an unlikely set of issues kept coming up: What exactly is a lien? Who has a property interest or its equivalent in bankruptcy? Did general obligation bondholders have special status, due to Detroit’s promise to use its “full faith and credit” for repayment? What about Detroit’s pension beneficiaries, who could point to a provision in the Michigan Constitution stating that accrued pension benefits cannot be diminished or impaired. In this Article, I explore these and related issues that have arisen in Detroit and other recent municipal bankruptcy cases.

Part I of the Article briefly …

The Cape Town Convention’S Improbable-But-Possible Progeny Part Two: Bilateral Investment Treaty-Like Enforcement Mechanism, Charles W. Mooney Jr.

All Faculty Scholarship

This Essay is Part Two of a two-part essay series that outlines and evaluates two possible future international instruments. Each instrument draws substantial inspiration from the Cape Town Convention and its Aircraft Protocol (together, the “Convention”). The Convention governs the secured financing and leasing of large commercial aircraft, aircraft engines, and helicopters. It entered into force in 2006. It has been adopted by sixty-six Contracting States (fifty-eight of which have adopted the Aircraft Protocol), including the U.S., China, the E.U., India, Ireland, Luxembourg, Russia, and South Africa.

This Part of the Essay explores whether an investor-state dispute settlement (ISDS) feature …

The Bankruptcy Code’S Safe Harbors For Settlement Payments And Securities Contracts: When Is Safe Too Safe?, Charles W. Mooney Jr.

All Faculty Scholarship

This Article addresses insolvency law-related issues in connection with certain financial-markets contracts, such as securities contracts, commodity contracts, forward contracts, repurchase agreements (repos), swaps and other derivatives, and master netting agreements. The Bankruptcy Code provides special treatment—safe harbors—for these contracts (collectively, qualified financial contracts or QFCs). This special treatment is considerably more favorable for nondebtor parties to QFCs than the rules applicable to nondebtor parties to other contracts with a debtor. Yet even some strong critics of the safe harbors concede that some special treatment may be warranted. This Article offers a critique of the safe harbor for settlement payments, …

Is Bankruptcy The Answer For Troubled Cities And States?, David A. Skeel Jr.

All Faculty Scholarship

The financial crisis that has afflicted America’s cities and states for the past decade is far from over. Under existing U.S. law, distressed municipalities can file for bankruptcy if their state permits this, as roughly half do. The states themselves do not have a bankruptcy option, however, no matter how bleak their circumstances may be. There have recently been dramatic developments in the handling of municipal distress. Several cities have filed for bankruptcy under Chapter 9, which, although adequate for sewer and water districts or a very small town, has conventionally been deemed irrelevant for real cities and municipalities. Additionally, …

A Test Case In International Bankruptcy Protocols: The Lehman Brothers Insolvency, Jamie Altman

San Diego International Law Journal

Part II of this Article, explains the competing theories underlying bankruptcy systems: universalism and territorialism. Part III details various statutory solutions to international bankruptcy problems. Next, Part IV analyzes the provisions of the Lehman Protocol in depth. Part V then examines the precedent upon which the Lehman Protocol relies. Part VI assesses potential threats to the Protocol?s success. This leads to Part VII, which contains suggestions for future protocols. Finally, Part VIII concludes.

Bankruptcy Or Bailouts?, Kenneth M. Ayotte, David A. Skeel Jr.

All Faculty Scholarship

The usual reaction if one mentions bankruptcy as a mechanism for addressing a financial institution’s default is incredulity. Those who favor the rescue of troubled financial institutions, and even those who prefer that their assets be promptly sold to a healthier institution, treat bankruptcy as anathema. Everyone seems to agree that nothing good can come from bankruptcy. Indeed, the Chapter 11 filing by Lehman Brothers has been singled out by many the primary cause of the severe economic and financial contraction that followed, and proof that bankruptcy is disorderly and ineffective. As a result, ad-hoc rescue lending to avoid bankruptcy …

Governance In The Ruins, David A. Skeel Jr.

All Faculty Scholarship

What gets an economy up and running after a catastrophic war or a period of oppressive rule? While there are nearly as many answers to these questions as experts, one of the most prominent for the past century has been law. Nearly every page of Law and Capitalism, a remarkable new book by Curtis Milhaupt and Katharina Pistor, stands in implicit or explicit dissent from the prevailing view. Milhaupt and Pistor’s countermodel begins a matrix consisting of two axes. The first contrasts a purely protective regime on one end, with a pervasively “coordinative” approach on the other. The second axis …

Managers' Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Christopher W. Frost, Rutheford B. Campbell

ExpressO

In this article, the authors consider the nature of corporate managers’ fiduciary duties in periods when the company is in financial distress. This matter is important not only to corporate managers, who need clear rules regarding their duties, but also to equity and debt investors, who must understand the nature of corporate fiduciary duties in order to price the capital that they contribute to the enterprise and allocate the financial risks of loss to the most efficient risk bearer from among the investors.

Unfortunately, courts – especially the important Delaware courts – have made a mess of all of this. …

Limiting Limited Liability, Giuseppe Dari-Mattiacci

Giuseppe Dari-Mattiacci

Limited liability may result in inefficient accident prevention, because a relevant portion of the expected harm is externalized on victims. This paper shows that under some restrictive conditions further limiting liability by means of a liability cap can improve caretaking.

Resolving Transnational Insolvencies Through Private Ordering, Robert K. Rasmussen

Michigan Law Review

There is no international bankruptcy law. No question, there are international insolvencies. Transnational firms, just like domestic ones, often cannot generate sufficient revenue to satisfy their debt obligations. Their financial distress creates a situation where assets and claimants are scattered across more than one country. But there is no international law that provides a set of rules for resolving the financial distress of these firms. The absence of any significant free-standing international bankruptcy treaty means that a domestic court confronted with the domestic part of a transnational enterprise has to decide which nation's domestic bankruptcy law will apply to which …

A Global Solution To Multinational Default, Jay Lawrence Westbrook

Michigan Law Review

A new world is slouching toward New York and London, Beijing and Bangkok, to be born. If our planet and our values survive the secondary effects of that emergence, we may look forward to a humanity more prosperous and more integrated than at any time in human history. The force that drives us to that future is free-market capitalism constrained in the vessel of democratic institutions. One important element in its progress is the fashioning of an international system for managing the financial crises that are one of the free market's inevitable consequences. In this symposium, we debate which is …