Law Commons^™

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

Michigan Law Review

In the empirical study we report in Bankruptcy Fire Sales, we compared the recoveries from the going-concern bankruptcy sales of twenty-five large, public companies with the recoveries from the bankruptcy reorganizations of thirty large, public companies. We found that, controlling for the asset size of the company and its presale or pre-reorganization earnings ("EBITDA"), reorganization recoveries were more than double sale recovenes. We are honored that Professor James J. White has chosen to comment on our study. White is an eloquent defender of the status quo, pulls no punches, and always has something interesting to say. Bankruptcy Noir is …

Bankruptcy Fire Sales, Lynn M. Lopucki, Joseph W. Doherty

Michigan Law Review

For more than two decades, scholars working from an economic perspective have criticized the bankruptcy reorganization process and sought to replace it with market mechanisms. In 2002, Professors Douglas G. Baird and Robert K. Rasmussen asserted in The End of Bankruptcy that improvements in the market for large public companies had rendered reorganization obsolete. Going concern value could be captured through sale. This Article reports the results of an empirical study comparing the recoveries in bankruptcy sales of large public companies in the period 2000 through 2004 with the recoveries in bankruptcy reorganizations during the same period. Controlling for company …

Rethinking Absolute Priority After Ahlers, John D. Ayer

Michigan Law Review

There was no evident reason why the Supreme Court granted certiorari in Norwest Bank Worthington v. Ahlers. It can be conceded that the issue was important: in the midst of an agricultural depression, a farmer was trying to hang onto his farm without paying the full amount of his bank debt. The farmer argued that he ought to be able to do so because he was offering to contribute "new value" beyond what he was obliged to contribute - specifically, his efforts as a farmer.

For Ahlers is a case with a past, as well as a future. Thus, in …

The Transformation Rule Under Section 522 Of The Bankruptcy Code Of 1978, Raymond B. Check

Michigan Law Review

This Note rejects the statutory arguments that have been advanced in favor of the transformation rule, and argues that the rule is inconsistent with both the policies motivating section 522 of the Bankruptcy Code and the overall purposes of the U.C.C. priority system. Part I examines the treatment of purchase money security in the U.C.C. scheme. It also describes the exemption provisions of the 1978 Bankruptcy Code and the legislative concerns that shaped those provisions. Part II summarizes the judicial adoption of the transformation rule and the statutory basis relied upon by courts in applying it. Part III argues that …

The Relative Priority Of Small Business Administration Liens: An Unreasonable Extension Of Federal Preference?, Ronald L. Olson

Michigan Law Review

During the past three decades, the priority of the federal government as against state and private creditors competing for the assets of debtors has been greatly strengthened. In terms of relative growth, the expansion of federal priority has been comparable to the increased commercial involvement of the United States. In more recent years, Congress and the judiciary have recognized that this increased governmental commercial activity necessitates a restriction in sovereign prerogatives. However, contrary to this general trend toward the contraction of sovereign prerogatives and for reasons appearing unsatisfactory to most commentators, the "sovereign prerogative" of priority to the assets of …

Bankruptcy-Prior Discharge Within Six Years As Bar To Wage Earner's Extension Plan, Anthony Lynch

Michigan Law Review

Appellant, a debtor, sought confirmation of a wage earners' extension plan pursuant to Chapter XIII of the Bankruptcy Act. Section 656 prohibits confirmation of a plan under Chapter XIII if the debtor would have been denied an ordinary discharge in bankruptcy had he been seeking one. A discharge within six years prior to the date of filing constitutes a bar to such discharge. The referee, finding that the debtor had obtained a discharge within six years, dismissed the proceedings. On appeal from the district court's affirmance, held, affirmed. Since a wage earner's extension plan clearly contemplates a discharge of …

Bills And Notes-Discharge-Intentional Destruction Due To Mistake As A Discharge, Richard S. Weinstein S.Ed.

Michigan Law Review

The holder of sixteen bonds issued by defendant destroyed the bonds believing them to be worthless after they had been in default as to both principal and interest for six years. Ten years later the defendant went into bankruptcy for reorganization and the holder learned that under the plan of reorganization the bonds were exchangeable for $400 in cash and $600 in preferred stock. When defendant refused to recognize the indebtedness even though the holder tendered an indemnity bond against wrongful payment, the holder instituted suit to recover the value of the bonds. The lower court denied relief to the …

Sales - Chattel Mortgages Under The Bulk Sales Statutes

Michigan Law Review

Gessaman, who was a dealer in new and used automobiles, was indebted to the bank and other creditors. While so indebted, he executed and delivered to the acceptance corporation a chattel mortgage upon all the furniture, fixtures, equipment and supplies used in the business. Later the mortgagee took possession of the chattels without suit, and immediately afterward Gessaman was adjudged a bankrupt. The trustee, in behalf of the bank and other creditors, seeks to subject the chattels to a trust in the hands of the acceptance corporation upon the claim that the chattels were taken under a sale in violation …