Law Commons^™

Rethinking Antebellum Bankruptcy, Rafael I. Pardo

Scholarship@WashULaw

Bankruptcy law has been repeatedly reinvented over time in response to changing circumstances. The Bankruptcy Act of 1841—passed by Congress to address the financial ruin caused by the Panic of 1837—constituted a revolutionary break from its immediate predecessor, the Bankruptcy Act of 1800, which was the nation’s first bankruptcy statute. Although Congress repealed the 1841 Act in 1843, the legislation lasted significantly longer than recognized by scholars. The repeal legislation permitted pending bankruptcy cases to be finally resolved pursuant to the Act’s terms. Because debtors flooded the judicially understaffed 1841 Act system with over 46,000 cases, the Act’s administration continued …

Pandemic Hope For Chapter 11 Financing, David A. Skeel Jr.

All Faculty Scholarship

One of the biggest surprises of the recent pandemic from a bankruptcy perspective has been the ready availability of financing. A variety of factors—such as an estimated $2.5 trillion in available funding at the outset of the crisis and the buoyant stock market—may have contributed. In this Essay, I focus on a less widely appreciated factor, a striking shift in the capital structure of many corporate debtors. Rather than borrowing from one group of lenders, debtors now often borrow from multiple groups of diverse lenders. Although the new capital structure complexity has downsides, it also could counteract a longstanding problem …

Building A Restructuring Hub: Lessons From Singapore, Aurelio Gurrea-Martinez

Research Collection Yong Pung How School Of Law

This article analyses the legal, market and institutional features needed to become an international hub for debt restructuring. For that purpose, it explores the strategy followed by Singapore, as well as the market and institutional factors generally found in other leading centres for legal and financial services such as the United States, the United Kingdom and Hong Kong. In jurisdictions traditionally having creditor-oriented insolvency systems, such as the United Kingdom, Hong Kong and Singapore, one of the primary challenges for the improvement of the restructuring framework for debtors consists of making sure that the insolvency system remains protective of the …

Racialized Bankruptcy Federalism, Rafael I. Pardo

Scholarship@WashULaw

Notwithstanding the robust national power conferred by the U.S. Constitution’s Bankruptcy Clause, the design and administration of federal bankruptcy law entails choices about the extent to which non-bankruptcy-law entitlements will remain un-displaced. When such entitlements sound in domestic nonfederal law (i.e., state or local law), displacing them triggers federalism concerns. Considerations regarding the relationship between the federal government and the nation’s smaller political subdivisions might warrant preserving nonfederal-law entitlements even though their displacement would be authorized pursuant to the bankruptcy power. But such considerations might also suggest replacing those entitlements with bankruptcy-specific ones. Some scholarship has theorized about the principles …

On Bankruptcy’S Promethean Gap: Building Enslaving Capacity Into The Antebellum Administrative State, Rafael I. Pardo

Scholarship@WashULaw

As the United States contends with the economic crisis triggered by the COVID-19 pandemic, federal bankruptcy law is one tool that can be used to resolve the financial distress suffered by individuals and businesses. When implementing this remedy, the question arises whether the law’s application should be viewed as limited to addressing private debt matters, without regard for the public interest. This Article answers the question by looking to modern U.S. bankruptcy law’s first forebear, the 1841 Bankruptcy Act, which Congress enacted in response to the depressed economic conditions following the Panic of 1837. That legislation created a judicially administered …

The Impact Of Bankruptcy, Duty Related Stress And Policing In Detroit, Sarah Markel

Department of Conflict Resolution Studies Theses and Dissertations

Urban police officers are regularly exposed to trauma and duty-related stress. The City of Detroit’s highly publicized bankruptcy proceedings reached finality in December 2014 but led to an additional layer of stress via financial uncertainty to Detroit police officers. The officers already experience high critical incident exposure rates and organizational tension/instability. While certain types of stressors (critical incident, organizational and family/personal) have been extensively researched and are largely anticipated within law enforcement agencies, the bankruptcy resolution, which included wage, pension, and medical insurance losses, may have compounded issues within the department. This research project used a mixed method case study …

Financial Freedom Suits: Bankruptcy, Race, And Citizenship In Antebellum America, Rafael I. Pardo

Scholarship@WashULaw

This Article presents a new frame of reference for thinking about how the federal government facilitated citizenship claims by free people of color in the antebellum United States. While scholars have accounted for various ways in which free black litigants may have made such claims, they have not considered how the Bankruptcy Act of 1841 enabled overindebted free people of color to reconstruct their economic lives, thereby restoring the financial freedom that was and continues to be an essential component of American citizenship. Relying on a variety of primary sources, including manuscript court records, this Article shows how six free …

The Lehman Brothers Bankruptcy C: Managing The Balance Sheet Through The Use Of Repo 105, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

The Lehman Brothers court-appointed bankruptcy examiner produced a 2,200-page report detailing possible claims that the estate might pursue. The most surprising revelation of the report was that during its last year Lehman had relied heavily on an unusual financing transaction—Repo 105. The examiner concluded that Lehman’s aggressive use of Repo 105 transactions enabled it to remove up to $50 billion of assets from its balance sheet at quarter-end and to manipulate its leverage ratio so that it could report more favorable results. This case considers in-depth Lehman’s questionable use of Repo 105 transactions and its impact.

Venezuela Undermines Gold Miner Crystallex's Attempts To Recover On Its Icsid Award, Sam Wesson

Loyola of Los Angeles International and Comparative Law Review

No abstract provided.

Federally Funded Slaving, Rafael I. Pardo

Scholarship@WashULaw

This Article presents a new frame of reference for thinking about the federal government’s complicity in supporting the domestic slave trade in the antebellum United States. While scholars have accounted for several methods of such support, they have failed to consider how federal bankruptcy legislation during the 1840s functionally created a system of direct financial grants to slave traders in the form of debt discharges. Relying on a variety of primary sources, including manuscript court records that have not been systematically analyzed by any published scholarship, this Article shows how the Bankruptcy Act of 1841 enabled severely indebted slave traders …

Documenting Bankrupted Slaves, Rafael I. Pardo

Scholarship@WashULaw

Bankrupted Slaves tells a story about institutional complicity in antebellum slavery — that is, the story of how the federal government in the 1840s and 1850s became the owner and seller of thousands of slaves belonging to financially distressed slaveowners who sought forgiveness of debt through the federal bankruptcy process. Relying on archival court records that have not been systematically analyzed by other scholars, Bankrupted Slaves analyzes how the Bankruptcy Act of 1841 and the domestic slave trade inevitably collided to create the bankruptcy slave trade, focusing the analysis through a case study of the Eastern District of Louisiana, which …

Limited Liability Property, Danielle D'Onfro

Scholarship@WashULaw

This Article offers a theory of secured credit that aims to answer fundamental questions that have long percolated in the bankruptcy and secured transactions literatures. Are security interests property rights, contract rights, or something else? Why do secured creditors enjoy a priority right that, in bankruptcy, requires them to be paid in full before other debt holders recover anything? Should we care that secured credit creates distributional unfairness when companies cannot pay their debts?

This Article argues that security interests are best understood as a form of “limited liability property.” Limited liability—the privilege of being legally shielded from liability that …

Bankrupted Slaves, Rafael I. Pardo

Scholarship@WashULaw

Responsible societies reckon with the pernicious and ugly chapters in their histories. Wherever we look, there exist ever-present reminders of how we failed as a society in permitting the enslavement of millions of black men, women, and children during the first century of this nation’s history. No corner of society remains unstained. As such, it is incumbent on institutions to confront their involvement in this horrific past to fully comprehend the kaleidoscopic nature of institutional complicity in legitimating and entrenching slavery. Only by doing so can we properly continue the march of progress, finding ways to improve society, not letting …

The Empty Idea Of “Equality Of Creditors”, David A. Skeel Jr.

All Faculty Scholarship

For two hundred years, the equality of creditors norm—the idea that similarly situated creditors should be treated similarly—has been widely viewed as the most important principle in American bankruptcy law, rivaled only by our commitment to a fresh start for honest but unfortunate debtors. I argue in this Article that the accolades are misplaced. Although the equality norm once was a rough proxy for legitimate concerns, such as curbing self-dealing, it no longer plays this role. Nor does it serve any other beneficial purpose.

Part I of this Article traces the historical emergence and evolution of the equality norm, first …

Limited Liability Property, Danielle D'Onfro

Scholarship@WashULaw

This Article offers a theory of secured credit that aims to answer fundamental questions that have long percolated in the bankruptcy and secured transactions literatures. Are security interests property rights, contract rights, or something else? Why do secured creditors enjoy a priority right that, in bankruptcy, requires them to be paid in full before other debt holders recover anything? Should we care that secured credit creates distributional unfairness when companies cannot pay their debts?

This Article argues that security interests are best understood as a form of “limited liability property.” Limited liability—the privilege of being legally shielded from liability that …

Lender Discrimination, Black Churches, And Bankruptcy, Pamela Foohey

Scholarly Works

Based on my original empirical research, in this Article, I expose a disparity between the demographics of the roughly 650 religious congregations that have filed for chapter 11 bankruptcy during part of the last decade and congregations nationwide. Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide.

Why are Black …

Taking Bankruptcy Rights Seriously, Rafael I. Pardo

Scholarship@WashULaw

Perhaps more so than any other area of law affecting individuals of low-to-moderate means, bankruptcy poignantly presents an affordability paradox: The system’s purpose is to relieve individuals from financial distress, yet it simultaneously demands a significant commitment of resources to obtain such relief. To date, no one has undertaken a comprehensive study of the complexities and costs of the litigation burden that Congress has imposed on self-represented debtors who seek a fresh start in bankruptcy. In order to explore the problems inherent in a system that sometimes necessitates litigation as the path for vindicating a debtor’s statutory right to a …

An Innovative Matrix For Dispute Resolution: The Dubai World Tribunal And The Global Insolvency Crisis, Jayanth K. Krishnan, Harold Koster

Articles by Maurer Faculty

This study examines a legal experiment that occurred during the height of the global financial crisis. As markets from the United States to Europe to the Global South shook, one country – the United Arab Emirates – found itself on the brink of economic collapse. In particular, in 2009 the U.A.E’s Emirate of Dubai was contemplating defaulting on $60 billion of debt it had amassed. Recognizing that such a default would have cataclysmic reverberations across the globe, Dubai’s governmental leaders turned to a small group of foreign lawyers, judges, accountants, and business consultants for assistance. Working in a coordinated fashion, …

The Law And Economics Of Consumer Debt Collection And Its Regulation, Todd J. Zywicki

Todd J. Zywicki

This article reviews the law and economics of consumer debt collection and its regulation a topic that has taken on added urgency in light of the announcement by the Consumer Financial Protection Bureau that it is considering new regulations on the subject. Although stricter regulation of permissible debt collection practices can benefit those consumers who are in default and increase demand for credit by consumers, overly-restrictive regulation will result in higher interest rates and less access to credit for consumers, especially higher-risk consumers. Regulation of particular practices may also have the unintended consequence of providing incentives for creditors to more …

The New Synthesis Of Bank Regulation And Bankruptcy In The Dodd-Frank Era, David A. Skeel Jr.

All Faculty Scholarship

Since the enactment of the Dodd-Frank Act in 2010, U.S. bank regulation and bankruptcy have become far more closely intertwined. In this Article, I ask whether the new synthesis of bank regulation and bankruptcy is coherent, and whether it is likely to prove effective.

I begin by exploring some of the basic differences between bank resolution, which is a highly administrative process in the U.S., and bankruptcy, which relies more on courts and the parties themselves. I then focus on a series of remarkable new innovations designed to facilitate the rapid recapitalization of systemically important financial institutions: convertible contingent capital …

Through The Lens Of Innovation, Mirit Eyal-Cohen

Mirit Eyal-Cohen

The legal system constantly follows the footsteps of innovation and attempts to discourage its migration overseas. Yet, present legal rules that inform and explain entrepreneurial circumstances lack a core understanding of the concept of innovation. By its nature, law imposes order. It provides rules, remedies, and classifications that direct behavior in a consistent manner. Innovation turns on the contrary. It entails making creative judgments about the unknown. It involves adapting to disarray. It thrives on deviations as opposed to traditional causation. This Article argues that these differences matter. It demonstrates that current laws lock entrepreneurs into inefficient legal routes. Using …

Rediscovering Corporate Governance In Bankruptcy, David A. Skeel Jr.

All Faculty Scholarship

In this Essay on Lynn LoPucki and Bill Whitford’s corporate reorganization project, written for a symposium honoring Bill Whitford, I begin by very briefly describing its historical antecedents. The project draws on the insights and perspectives of two closely intertwined traditions: the legal realism of 1930s, whose exemplars included William Douglas and other participants in the SEC study; and the law in action movement at the University of Wisconsin. In Section II, I briefly survey the key contributions of the corporate governance project, which punctured the then-conventional wisdom about the treatment of shareholders in bankruptcy, managers’ principal allegiance, and many …

Introduction To Institutional Investor Activism: Hedge Funds And Private Equity, Economics And Regulation, William W. Bratton, Joseph A. Mccahery

All Faculty Scholarship

The increase in institutional ownership of recent decades has been accompanied by an enhanced role played by institutions in monitoring companies’ corporate governance behaviour. Activist hedge funds and private equity firms have achieved a degree of success in actively shaping the business plans of target firms. They may be characterized as pursuing a common goal – in the words used in the OECD Steering Group on Corporate Governance, both seek ‘to increase the market value of their pooled capital through active engagement with individual public companies. This engagement may include demands for changes in management, the composition of the board, …

Against Regulatory Displacement: An Institutional Analysis Of Financial Crises, Jonathan C. Lipson

Jonathan C. Lipson

This paper uses “institutional analysis”—the study of the relative capacities of markets, courts, and regulators—to make three claims about financial crises.

First, financial crises are increasingly a problem of “regulatory displacement.” Through the ad hoc rescues of 2008 and the Dodd-Frank reforms of 2010, regulators displace market and judicial processes that ordinarily prevent financial distress from becoming financial crises. Because regulators are vulnerable to capture by large financial services firms, however, they cannot address the pathologies that create crises: market concentration and complexity. Indeed, regulators may inadvertently aggravate these conditions through resolution tactics that consolidate firms, and the volume and …

Single Point Of Entry And The Bankruptcy Alternative, David A. Skeel Jr.

All Faculty Scholarship

This Essay, which will appear in Across the Great Divide: New Perspectives on the Financial Crisis, a Brookings Institution and Hoover Institution book, begins with a brief overview of concerns raised by the Lehman Brothers bankruptcy about the adequacy of our existing architecture for resolving the financial distress of systemically important financial institutions. The principal takeaway of the first section is that Title II as enacted left most of these issues unanswered. By contrast, the FDIC’s new single point of entry strategy, which is introduced in the second section, can be seen as addressing nearly all of them. The …

When Should Bankruptcy Be An Option (For People, Places Or Things)?, David A. Skeel Jr.

All Faculty Scholarship

When many people think about bankruptcy, they have a simple left-to-right spectrum of possibilities in mind. The spectrum starts with personal bankruptcy, moves next to corporations and other businesses, and then to municipalities, states, and finally countries. We assume that bankruptcy makes the most sense for individuals; that it makes a great deal of sense for corporations; that it is plausible but a little more suspect for cities; that it would be quite odd for states; and that bankruptcy is unimaginable for a country.

In this Article, I argue that the left-to-right spectrum is sensible but mistaken. After defining “bankruptcy,” …

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, …

Bankruptcy And Economic Recovery, Thomas H. Jackson, David A. Skeel Jr.

All Faculty Scholarship

To measure economic growth or recovery, one traditionally looks to metrics such as the unemployment rate and the growth in GDP. And in terms of figuring out institutional policies that will stimulate economic growth, the focus most often is on policies that encourage investment, entrepreneurial enterprises, and reward risk-taking with appropriate returns. Bankruptcy academics that we are, we tend to add our own area of expertise to this stable— with the firm belief that thinking critically about bankruptcy policy is an important element of any set of institutions designed to speed economic recovery. In this paper, written for a book …

Rethinking The Principal-Agent Theory Of Judging, Rafael I. Pardo, Jonathan Remy Nash

Scholarship@WashULaw

This Essay offers new insights into understanding the relationship between higher and lower courts and responds to the extant literature that has characterized the relationship as one involving a principal and an agent. We challenge the underpinnings of the principal-agent understanding of judicial hierarchies and identify problems with the theory’s applicability in this context. While principals ordinarily select their agents, higher court judges usually do not select lower court judges. Moreover, while lower court judges may cast votes with an eye to the possibility of elevation to a higher court, the higher court judges who review the lower court’s decisions …

Contract Hope And Sovereign Redemption, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

Sovereign immunity has served as a partial substitute for bankruptcy protection, but it has encouraged a minority of creditors to pursue unorthodox legal remedies with spillover effects far beyond the debtor-creditor relationship. The attempt to enforce Argentina’s pari passu clause in New York is an example of such a remedy, which relies primarily on collateral damage to other creditors and market infrastructure to obtain settlement from a debtor that would not pay. The District Court decision, now on appeal before the Second Circuit, may not make holding out more attractive in future restructurings – but it would make participation less …