Law Commons^™

The De-Gentrification Of New Markets Tax Credits, Roger M. Groves

ExpressO

This article provides the most comprehensive analysis to date of the New Markets Tax Credits program established by Congress. The purpose of the NMTCs is to use tax credits as incentives for investors to provide equity funds into low income areas. The article reveals that over $2 billion of federal tax subsidies that have been allocated to gentrified projects for the wealthy, rather than the intended beneficiaries – low income residents in the urban core – as Congress intended. The article proposes amendments to the statute and regulations to close unintended loopholes.

Contractarianism, Contractualism, And The Law Of Corporate Insolvency, Riz Mokal

ExpressO

What is the appropriate way of theorising about corporate bankruptcy law? That lies, argues this paper, in rejecting Pareto and Kaldor-Hicks efficiency in favour of a particular conception of transaction cost efficiency, and in rejecting the ‘contractarian’ Creditors’ Bargain Model in favour of the ‘contractualist’ Authentic Consent Model. The paper vindicates these arguments with an analysis of the automatic stay which characterises the collective liquidation regime, of the pari passu principle often said to be at the heart of this regime, and of the liability imposed in some jurisdictions on the managers of terminally distressed companies for failing to take …

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

Essay -- Preemption, Agency Cost Theory, And Predatory Lending By Banking Agents: Are Federal Regulators Biting Off More Than They Can Chew?, Christopher L. Peterson

ExpressO

A pitched battle is currently being waged for control of the American banking industry. For over a hundred years, the federal and state governments have maintained a complex, but relatively stable truce in their contest for power. At the beginning of our republic, state governments were the primary charterers and regulators of banks. In the wake of the Civil War, the National Bank Act created parity between federal and state banks, cementing the notion of a “dual banking system” that endured through the twentieth century. But in the past five years, the federal government has increasingly used its powers under …

Predatory Structured Finance, Christopher L. Peterson

ExpressO

Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is “structured” to appeal to different types of investors. …

Recent Defined Benefit Pension Reform: Reasons And Results, Daniel B. Klaff

ExpressO

In the face of corporate bankruptcies, the Pension Benefit Guaranty Corporation (“PBGC”) assures workers that their defined benefit pensions will be protected. It is this fact which has motivated recent reform of the PBGC and the overarching defined benefit plan system by Congress. This paper explores those reforms by addressing the reasons for and results of the most recent reform which had as its primary aim restoring the fiscal solvency of the PBGC. The paper challenges popular accounts of the reform process while examining the results of such reform for important stakeholders without resorting to an overly technical discussion of …

Greed And Pride In International Bankruptcy: The Problems And Proposed Solutions To “Local Interests”, John A. E. Pottow

Law & Economics Working Papers Archive: 2003-2009

From just-enacted (2005) chapter 15 of the U.S. Bankruptcy Code to the U.K. Enterprise Act of 2002, legislative reforms to international bankruptcy are on the rise. One of the thorniest issues facing scholars and policymakers alike in these efforts is what to do with the nettlesome problem of “local interests.” What exactly are these “local interests,” and what is it that we are we trying to protect? Literature to date has been elusive in pinning this down and has offered, for the most part, only undifferentiated anxiety that an international bankruptcy regime may impinge undesirably upon “local concerns.” This article …

Bond Repudiation, Tax Codes, The Appropriations Process And Restitution Post-Eminent Domain Reform, John H. Ryskamp

ExpressO

This brief comment suggests where the anti-eminent domain movement might be heading next.

Priority As Pathology: The Pari Passu Myth, Riz Mokal

ExpressO

This paper aims to analyse the pari passu principle of insolvency law (which provides that the creditors of a company in liquidation are to be paid rateably), and to ask how it relates to other principles available for the treatment of claims in corporate liquidation. The discussion reveals that the principle has rather limited effect in governing distributions of the insolvent's estate. Not only do various types of secured claim fall beyond its ambit, even unsecured claims are often exempt from its application. Nevertheless, the principle thrives both in judicial rhetoric and in academic arguments. For example, many a challenge …

The Search For Someone To Save: A Defensive Case For The Priority Of Secured Credit, Riz Mokal

ExpressO

The priority of secured credit has repeatedly and famously been attacked for allowing the exploitation of certain types of unsecured creditor. It has also been blamed for creating inefficiencies. This paper examines these arguments specifically as applied to this jurisdiction, and using both theoretical analysis and recent empirical data, suggests none of them can be sustained. It is argued that security is unlikely to lead to the exploitation of involuntary, ‘uninformed’, or ‘unsophisticated’ creditors, since the perverse incentives it allegedly creates for the debtor’s management are likely to be outweighed by the managers’ liquidation-related costs. It is then pointed out …

U.S. Corporate And Bank Insolvency Regimes: A Comparison And Evaluation, Robert R. Bliss, George G. Kaufman

ExpressO

In the U.S., the insolvency resolution of most corporations is governed by the federal bankruptcy code and is administered by special bankruptcy courts. Most large corporate bankruptcies are resolved under Chapter 11 reorganization proceedings. However, commercial bank insolvencies are governed by the Federal Deposit Insurance Act and are administered by the FDIC. These two resolution processes—corporate bankruptcy and bank receiverships—differ in a number of significant ways, including the type of proceeding (judicial versus administrative); the rights of managers, stockholders and creditors in the proceedings; the explicit and implicit goals of the resolution; the prioritization of creditors’ claims; the costs of …

The Authentic Consent Model: Contractarianism, Creditors' Bargain, And Corporate Liquidation, Riz Mokal

ExpressO

The first part of this article asks if the Creditors’ Bargain Model, long employed by insolvency scholars as the starting point for many an analysis, can explain or justify even the most distinctive and fundamental feature of insolvency law. After examining the defining features of the model’s construction, the role of self-interest and consent in it, and its ex ante position, it is concluded that the Bargain model can neither explain nor legitimate the coercive collective liquidation regime.

The second part of the article develops an alternative model to analyse and justify insolvency law. The starting premise is that all …

Administrative Receivership And Administration - An Analysis, Riz Mokal

ExpressO

This paper argues that the Enterprise Act 2002 has changed the way those dealing with distressed companies are required to behave much more significantly than most commentators realise. The motivation for this change lies in the ways in which administrative receivership is destructive of social value (in terms of unnecessary job losses and other resource misallocations). The paper identifies three such ways, all linked with the fact that receivership ties the office-holder’s duties to the interests of the debtor’s main bank. This is undesirable because the bank (a) is usually oversecured and thus has little incentive, once receivership is underway, …

The Valuation Of Distressed Companies - A Conceptual Framework, Michael Crystal Qc, Riz Mokal

ExpressO

It is often crucial to ascertain the value of a distressed company. Those interested in the company’s undertaking require this information to determine what should be done with the company’s business, and how the value in the company’s estate should be distributed amongst them. In this article, addressed primarily to the parties to corporate reorganisation proceedings in the UK and their advisers, we provide a conceptual framework within which these questions might be answered.

The first part of the article identifies the bases on which a company’s business might be valued. Drawing upon economic theory, empirical evidence, and the sophisticated …

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. …