Law Commons^™

Is It Fair To Discriminate In Favor Of Pensioners In A Chapter 11 Plan?, Summer B. Chandler

Summer Chandler

“A number of U.S. cities are plagued with debt obligations that cannot be met. As municipalities¹ have turned to chapter 9 protection to ease their financial burdens, various creditor constituencies have found themselves pitted against each other as they realize that they might be forced to share a finite amount of assets and funds that are insufficient to cover all of the a municipality’s debts. The ultimate goal of a chapter 9 filing is the confirmation of an adjustment plan that implements a feasible and comprehensive restructuring of a municipality’s obligations. A municipality’s proposed plan must be approved by …

Between Dialogue And Decree: International Review Of National Courts, Robert B. Ahdieh

Robert B. Ahdieh

Recent years have seen dramatic growth in the number of international tribunals at work across the globe, from the Appellate Body of the World Trade Organization and the International Tribunal for the Law of the Sea, to the Claims Resolution Tribunal for Dormant Claims in Switzerland and the International Criminal Court. With this development has come both increased opportunity for interaction between national and international courts and increased occasion for conflict. Such friction was evident in the recent decision in Loewen Group, Inc. v. United States, in which an arbitral panel constituted under the North American Free Trade Agreement found …

Business Insolvency And The Irish Debt Crisis, Paul B. Lewis

Paul Lewis

No abstract provided.

Sales Or Plans: A Comparative Account Of The "New" Corporate Reorganization, Stephanie Ben-Ishai, Stephen J. Lubben

Stephanie Ben-Ishai

In this article, Professors Stephanie Ben-Ishai and Stephen Lubben explore the recent surge in popularity of “quick-sales,” essentially the pre-reorganization plan sale of an insolvent debtor’s assets. In their examination of quick sales, the authors use the recent examples of Lehman Brothers and Chrysler to illustrate the popularity and relevance of the pre-plan sales. The authors then move on to a more detailed discussion of the quick sales process in both Canada and the United States, isolating the differences and similarities between both countries, and weighing the costs and benefits of each approach. Ultimately, the authors argue that questions of …

Chapter 11 Case Management And Delay Reduction: An Empirical Study, Samuel Bufford

Hon. Samuel L. Bufford

Chapter 11 bankruptcy cases will drag on interminably if judges let them. The recent nine-month O.J. Simpson trial was short compared to the careers of some chapter 11 bankruptcy cases. The typical duration of chapter 11 cases can be reduced remarkably, however, through moderate judicial case management. The data in this study show that relatively modest judicial case management can squeeze a substantial amount of delay out of chapter 11 cases within the context of the present bankruptcy law. The case management program in this study, applied to 81.2% of the chapter 11 case load, shortened by 24.1% the time …

A Proposal For Chapter 10: Reorganization For 'Too Big To Fail' Companies, George Kuney, Michael James

Michael C James

The Bankruptcy Code provides tools that are well-suited to addressing and resolving the financial problems faced by the "Big Three" automakers and other "too big to fail" companies ("TBTF Companies"). But Chapter 11 as it presently exists would inevitably impose great harm on vendors and other interrelated businesses resulting in a ripple effect causing cascading business failures and lay-offs. With comparatively minor changes to the Bankruptcy Code, enacted in the form of a streamlined new Chapter 10, however, TBTF Companies could use the powerful tools of the bankruptcy process to remedy their core financial problems without imposing on society unnecessary …

Why Do Distressed Companies Choose Delaware? An Empirical Analysis Of Venue Choice In Bankruptcy , Kenneth M. Ayotte, David A. Skeel Jr.

Kenneth Ayotte

We analyze a sample of large Chapter 11 cases to determine which factors motivate the choice of filing in one court over another when a choice is available. We focus in particular on the Delaware court, which became the most popular venue for large corporations in the 1990s. We find no evidence of agency problems governing the venue choice or affecting the outcome of the bankruptcy process. Instead, firm characteristics and court characteristics, particularly a court's level of experience, are the most important factors. We find that court experience manifests itself in both a greater ability to reorganize marginal firms …

Crowdsourcing (Bankruptcy) Fee Control, Matthew Bruckner

Matthew Adam Bruckner

In this article, I explore how crowdsourcing can help reduce the cost of professional representation in corporate bankruptcy cases. The cost of professional representation in bankruptcy cases is currently a hot topic, with oral argument haven taken place before the U.S. Supreme Court in Baker Botts L.L.P. v. Asarco, L.L.C. in February 2015, which case addressed various issues raised in my article. In brief, the fees of lawyers, investment bankers, and other bankruptcy professionals has been spiraling out of control because chapter 11’s existing fee control system is broken. That system can neither identify nor control professional overcharging, which empirical …

Examining Success, Jonathan C. Lipson

Jonathan C. Lipson

Chapter 11 of the Bankruptcy Code presumes that managers will remain in possession and control of a corporate debtor. This presents an obvious agency problem: these same managers may have gotten the company into trouble in the first place. The Bankruptcy Code thus includes checks and balances in the reorganization process, one of which is supposed to be an “examiner,” a private individual appointed to investigate and report on the debtor’s collapse.

We study their use in practice. Extending prior research, we find that examiners are exceedingly rare, despite the fact that they should be “mandatory” in large cases ($5 …

Flexible Finality In Bankruptcy: The Right To Appeal A Denial Of Plan Confirmation, Joseph L. Nepowada

Joseph L Nepowada

This Article examines the current state of the law interpreting what “finality” means in context of a bankruptcy proceeding and what effect that interpretation has on the appealability of certain orders, such as the denial of plan confirmation under a Chapter 13 bankruptcy proceeding. The article highlights nine courts of appeals and their decisions concerning the appealability of a denial of a plan confirmation and it is apparent that the courts are split with three courts of appeal allowing a debtor to appeal a denial of plan confirmation as a matter of right, while six courts of appeal will deny …

Reforming Preference Law, Dalie Jimenez

Dalie Jimenez

This article responds to Brook Gotberg's proposal to do away with preference liability in certain Chapter 11 cases and provides empirical evidence of preferential transfers in consumer Chapter 7 cases.

Reward The Stalking Horse Or Preserve The Estate: Determining The Appropriate Standard Of Review For Awarding Break-Up Fees In § 363 Sales, Zachary Frimet

Zachary Frimet

Following the surge of bankruptcies in the wake of the Great Recession, a growing and somewhat controversial trend has emerged whereby companies seeking to purchase a debtor’s assets in bankruptcy frequently make use of Section 363 of the United States Bankruptcy Code (“§ 363”). In general, § 363 sales are accomplished via public auction. This aspect of § 363 exposes initial bidders, known in bankruptcy as “stalking horses bidders”, to the risk that they will commit time and resources in pursuit of the acquisition and yet fail to succeed as the prevailing bidder. To hedge against this risk, stalking horse …

The Value Of Soft Variables In Corporate Reorganizations, Michelle M. Harner

Michelle M. Harner

When a company is worth more as a going concern than on a liquidation basis, what creates that additional value? Is it the people, management decisions, the simple synergies of the operating business, or some combination of these types of soft variables? And perhaps more importantly, who owns or has an interest in these soft variables? This article explores these questions under existing legal doctrine and practice norms. Specifically, it discusses the characterization of soft variables under applicable law and in financing documents, and it surveys related judicial decisions. It also considers the overarching public policy and Constitutional implications of …

Exploring Chapter 11 Reform: Corporate And Financial Institution Insolvencies; Treatment Of Derivatives -, Michelle Harner

Michelle M. Harner

No abstract provided.

The Bankruptcy Of Golfers' Warehouse, Inc.: A Lesson In How To Sell A Business In Chapter 11, Briton Collins, Will Smith, David Choi

David Y Choi

No abstract provided.

Activist Investors, Distressed Companies, And Value Uncertainty, Michelle M. Harner, Jamie Marincic Griffin, Jennifer Ivey-Crickenberger

Michelle M. Harner

Hedge funds, private equity firms, and other alternative investment funds are frequently key players in corporate restructurings. Most commentators agree that the presence of a fund can change the dynamics of a chapter 11 case. They cannot agree, however, on the impact of this change—i.e., do funds create or destroy enterprise value? This essay contributes to the dialogue by analyzing data from chapter 11 cases in which funds are in a position to influence the debtor’s exit strategy. The data shed light on what such funds might achieve in chapter 11 cases and the potential implications for debtors and their …

Chapter 11 Triage: Diagnosing A Debtor's Prospects For Success, Anne Lawton

Anne Lawton

In 2005, Congress enacted a number of provisions aimed at improving success rates for Chapter 11 small business debtors. The available empirical data, albeit limited in scope, showed startlingly low rates of plan confirmation. Conventional wisdom attributed the plan confirmation problem to the high failure rate of the Chapter 11 small business debtor. This Article presents the results of a large empirical study of Chapter 11 cases filed in 2004, the year before the small business amendments. The study examines the following questions. First, are confirmation rates in Chapter 11 low, and how do small debtors fare in terms of …

Chapter 11 Triage: Diagnosing A Debtor's Prospects For Success, Anne Lawton

Anne Lawton

Chapter 11 Triage: Diagnosing A Debtor's Prospects for Success by Anne Lawton In 2005, Congress enacted a number of provisions aimed at improving success rates for Chapter 11 small business debtors. The available empirical data, albeit limited in scope, showed startlingly low rates of plan confirmation. Conventional wisdom attributed the plan confirmation problem to the high failure rate of the Chapter 11 small business debtor. This Article presents the results of a large empirical study of Chapter 11 cases filed in 2004, the year before the small business amendments. The study examines the following questions. First, are confirmation rates in …

Chapter 11 Triage: Diagnosing A Debtor's Prospects For Success, Anne Lawton

Anne Lawton

In 2005, Congress enacted a number of provisions aimed at improving success rates for Chapter 11 small business debtors. The available empirical data, albeit limited in scope, showed startlingly low rates of plan confirmation. Conventional wisdom attributed the plan confirmation problem to the high failure rate of the Chapter 11 small business debtor. This Article presents the results of a large empirical study of Chapter 11 cases filed in 2004, the year before the small business amendments. The study examines the following questions. First, are confirmation rates in Chapter 11 low, and how do small debtors fare in terms of …

Introduction: The Future Of Chapter 11: A Symposium Cosponsored By The American College Of Bankruptcy, Ingrid Michelsen Hillinger

Ingrid Michelsen Hillinger

Professor Ingrid Michelsen Hillinger offers introductory remarks to the Symposium: The Future of Chapter 11, cosponsored by the American College of Bankruptcy and the Boston College Law Review and held at the Boston College Law School on April 22, 2005.

The Uncertainty Of “True Sale” Analysis In Originator Bankruptcy, Stephen P. Hoffman

Stephen P. Hoffman

While much of law is complex or unclear, it is unusual for a judge to comment that a legal doctrine is so unsettled that courts “could flip a coin” to decide an issue. Unfortunately for practitioners, determining what constitutes a “true sale” for bankruptcy purposes is such an issue. Add to this the recent novel and innovative processes of structured finance and asset-backed securitization, and you have the stuff of law students’—and corporate counsels’—nightmares. As a result, courts and legislatures need to provide clarity in this area so that originators can safely structure investments and transactions, not only for the …

Investing In Distressed Italian Companies Under The Reformed Italian Bankruptcy Law - A Comparison With The Us Bankruptcy Code, Pierantonio Musso

Pierantonio Musso

This article presents a scheme to profitably invest in distressed Italian companies by taking advantage of the Italian Bankruptcy Law in comparison with the US Bankruptcy Code. The risks connected to the insolvency proceeding are analyzed under their economic effects and foreseen in their general appearance. Specific remedies to avoid or mitigate the potential risks are provided. Singular advantages, available only in the proposed investment scheme under the Italian Law, are described. As a result the investment produces a less risky and more profitable outcome than an investment in a non-distressed and non-Italian target company.

Delaware’S Relevance In Chapter 22: Who Is “Courting Failure” Now?, Ruth S. Lee

Ruth S Lee

This study presents surprising new statistical evidence that contributes to the current “over-heated” academic debate about the Delaware courts’ role in Chapter 11 failure. In 2001, Professor LoPucki published an influential article suggesting that when large corporations file for bankruptcy under Chapter 11, they fail at a dramatically higher rate in Delaware courts than in other jurisdictions. He attributed this to corruption. His article enraged many academics and practitioners, and ignited many articles in the past two decades. This study presents startling evidence that while Chapter 11s filed in Delaware courts did have much higher failure rates from 1991-1996, after …

The Potential Value Of Dynamic Tension In Restructuring Negotiations, Michelle M. Harner, Jamie Marincic

Michelle M. Harner

No abstract provided.

Dip Lending And The Death Of Emergence: Reorganization Outcomes Post-Crisis, Aditya Habbu, Nikhil Abraham

Nikhil Abraham

We examine bankruptcy successes and failures before and after the credit crisis for those debtors that sought DIP loans. We found that post-crisis, for companies that filed for bankruptcy stand alone emergences decreased (percentage-wise), while sales increased. Additionally, we found that post-crisis private equity fund involvement in debtor in possession (“DIP”) loans increased, and DIP loan interest rates increased as well. To supplement the analysis we surveyed practitioners, interviewing two Federal bankruptcy judges, a restructuring investment bank managing director, as well as DIP lenders. These interviews and our data support the view that while DIP loans were once a path …

Committee Capture? An Empirical Analysis Of The Role Of Creditors' Committees In Business Reorganizations, Michelle Harner, Jamie Marincic

Michelle M. Harner

The number of businesses experiencing financial distress increased significantly during the past several years. The number of Chapter 11 reorganization cases likewise rose. And many of these business failures were spectacular, leaving little value for creditors and even less for shareholders. Consequently, how the business debtor’s limited asset pie is divided and who gets to allocate the pieces are very relevant and important questions.

The U.S. Bankruptcy Code generally contemplates the appointment of a committee of the debtors’ unsecured creditors to serve as a fiduciary for all general unsecured creditors and as a statutory watchdog over the debtor and its …

Cleaning Up Bankruptcy: Limiting The Dischargeability Of Environmental Cleanup Costs, Sonali P. Chitre

Sonali P Chitre

This article reconciles the joint aims of environmental and bankruptcy law after Judge Posner’s myopic opinion in the Seventh Circuit’s resolution of U.S. v. Apex Oil. These two areas of law represent alternative means to the same end—the equitable distribution of limited resources—and share equity’s traditional emphasis of function over form. Ignoring these principles, Judge Posner ruled in Apex that a cleanup order constitutes a dischargeable “claim” when styled as a legal judgment but not when styled as an equitable injunction. This despite the fact that in either case the liability amounts to the same thing-payment must be made for …

Interpreting The Supreme Court’S Treatment Of The Chrysler Bankruptcy And Its Impact On Future Business Reorganizations, Fred N. David

Fred David

On June 9, 2009, the Supreme Court terminated its stay of Chrysler’s sale of substantially all of the company’s assets to a new entity, dubbed “New Chrysler” with the backing of European automaker Fiat. The effect of that ruling was to permit the sale to close the next day and bring to an end a chaotic period that determined Chrysler’s future. However, critics of the sale to Fiat argued that the Supreme Court’s ruling would also have a detrimental effect on secured credit and undermined the creditor protections normally afforded by Chapter 11 going forward.

But the Supreme Court was …

Trends In Distressed Debt Investing: An Empirical Study Of Investors' Objectives, Michelle M. Harner

Michelle M. Harner

Increased creditor control in chapter 11 cases has generated considerable debate over the past several years. Proponents of creditor control argue that, among other things, it promotes efficiency in corporate reorganizations. Critics assert that it destroys corporate value and frequently forces otherwise viable entities to liquidate. The increasing involvement of professional distressed debt investors in chapter 11 cases has intensified this debate. In this article, I present and analyze empirical data regarding the investment practices and strategies of distressed debt investors. Based on this data and actual case reports, I reach two primary conclusions. First, although relatively few in number, …

The Corporate Governance And Public Policy Implications Of Activist Distressed Debt Investing, Michelle M. Harner

Michelle M. Harner

Activist institutional investors traditionally have invested in a company's equity to try to influence change at the company. Some of these investors, however, are now purchasing a company's debt for this same purpose. They may seek to change a company's management and board personnel, operational strategies, asset holdings or capital structure. The chapter 11 bankruptcy cases of Allied Holdings, Inc. and its affiliates exemplify the strategies of activist distressed debt investors. In the Allied cases, Yucaipa Companies, a distressed debt investor, purchased approximately 66% of Allied's outstanding general unsecured bond debt. Yucaipa used this debt position to exert significant influence …