Law Commons^™

The New Bond Workouts, William W. Bratton, Adam J. Levitin

All Faculty Scholarship

Bond workouts are a famously dysfunctional method of debt restructuring, ridden with opportunistic and coercive behavior by bondholders and bond issuers. Yet since 2008 bond workouts have quietly started to work. A cognizable portion of the restructuring market has shifted from bankruptcy court to out-of-court workouts by way of exchange offers made only to large institutional investors. The new workouts feature a battery of strong-arm tactics by bond issuers, and aggrieved bondholders have complained in court. The result has been a new, broad reading of the primary law governing workouts, section 316(b) of the Trust Indenture Act of 1939 (“TIA”), …

When Social Enterprises Fail, Jonathan Brown

Elisabeth Haub School of Law Faculty Publications

This Article identifies the conflicts between social enterprise legislation and bankruptcy law and presents a normative argument for a legal regime that would harmonize the two. Focusing on benefit corporations, the most widely adopted social enterprise form, this Article observes that existing law leaves uncertainty as to the role of directors at a time of financial distress and will produce outcomes that are at odds with the core goals of social enterprise legislation. Then, drawing on academic proposals for contract-based systems of bankruptcy, this Article argues that just as a firm may opt out of a corporate governance norm of …

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 …

Competing Narratives In Corporate Bankruptcy: Debtor In Control Vs. No Time To Spare, David A. Skeel Jr.

All Faculty Scholarship

When a company like Chrysler or United Airlines files for bankruptcy, it offers narrative explaining the way out of its predicament. In support of its claim that the business is worth saving, the company may argue that it simply needs time to renegotiate its obligations with its creditors. Alternatively, it may say that asset values are deteriorating rapidly and it is imperative that the bankruptcy court immediately approve a sale of the company, or some other rapid disposition. These two possibilities correspond to the principal resolution narratives in current Chapter 11 bankruptcy practice, which I refer to as Debtor in …

Is Forum-Shopping Corrupting America's Bankruptcy Courts? Review Of Lynn M. Lopucki, "Courting Failure: How Competition For Big Cases Is Corrupting The Bankruptcy Courts", Todd J. Zywicki

George Mason University School of Law Working Papers Series

In his new book, Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts, Professor Lynn LoPucki’s book argues that that current bankruptcy venue rules have spawned an improper “competition for big cases” that has “corrupted” America’s bankruptcy courts. LoPucki argues that this competition has harmed the bankruptcy system and the economy, transferring wealth from creditors and employees to incumbent management and bankruptcy professionals. He also argues that the competition that has corrupted the American bankruptcy system is being replicated internationally, resulting in a similar competition and similar harm on the global stage.

This essay reviews LoPucki’s book …

Valuation Averaging: A New Procedure For Resolving Valuation Disputes, Keith Sharfman

Rutgers Law School (Newark) Faculty Papers

In this Article, Professor Sharfman addresses the problem of "discretionary valuation": that courts resolve valuation disputes arbitrarily and unpredictably, thus harming litigants and society. As a solution, he proposes the enactment of "valuation averaging," a new procedure for resolving valuation disputes modeled on the algorithmic valuation processes often agreed to by sophisticated private firms in advance of any dispute. He argues that by replacing the discretion of judges and juries with a mechanical valuation process, valuation averaging would cause litigants to introduce more plausible and conciliatory valuations into evidence and thereby reduce the cost of valuation litigation and increase the …

Fiduciary Duties Of Officers And Directors Of Distressed Corporations, Royce De R. Barondes

Faculty Publications

This Article argues that this widely-accepted premise for analyzing the incentives created by various alternative structures of federal bankruptcy law is suspect.

Patterns In The Bankruptcy Reorganization Of Large Publicly Held Companies, Lynn M. Lopucki, William C. Whitford

UF Law Faculty Publications

Several recent articles contend that Chapter of the Bankruptcy Code does not provide efficient procedures for redressing the financial distress of large firms. The authors of these articles argue that the creditors of a financially distressed firm would fare better if the corporation's problems were resolved in some other way. The argument has proceeded principally on a theoretical level, since it is virtually impossible to know for certain how firms that have been in Chapter 11 would have fared under a different procedure. We recently completed an extensive empirical study of forty-three Chapter 11 cases involving large, publicly held firms. …

Running The Asylum: Governance Problems In Bankruptcy Reorganizations, Christopher W. Frost

Law Faculty Scholarly Articles

Like much of life, the study of bankruptcy is the study of leverage. Chapter 11 of the United States Bankruptcy Code may be appropriately described as providing a framework within which interested parties may negotiate solutions to the problems facing a troubled company. The allocation of leverage to the negotiating parties is critical to the ultimate outcome of the process. In any negotiation setting control over the bargaining process is a key item of leverage. This Article proposes a framework for analysis and suggests solutions to the problem of control over corporations during the pendency of a Chapter 11 reorganization …

"Reasonable Expectations" Define Board Power To Liquidate A Solvent Close Corporation In Bankruptcy, Shelby D. Green

Elisabeth Haub School of Law Faculty Publications

This Article will argue that, in the absence of contrary provisions in the articles of incorporation, the power of the board of directors of a solvent close corporation to file a voluntary petition for liquidation in bankruptcy must be determined by the theory of “reasonable expectations.” This doctrine not only addresses wrongdoing by those in control, but also defines the power and rights of close corporation participants. Part II briefly considers the uses of bankruptcy in recent years and comments on the peculiar occasion of a solvent corporation deciding to liquidate in bankruptcy. Part III summarizes the facts and identifies …

Why Have Chapter 11 Bankruptcies Failed So Miserably? A Reappraisal Of Congressional Attempts To Protect A Corporation's Net Operating Losses After Bankruptcy, Michelle A. Cecil

Faculty Publications

This Article will first outline the history of judicial and statutory limitations on the free transferability of net operating losses, highlighting congressional attempts to afford more favorable treatment to troubled corporations reorganizing in Title 11 proceedings. It will then examine the operation of section 382 of the 1986 Code, again focusing on those provisions designed to assist in the successful reorganization of these corporations, and will demonstrate the wholesale inability of these provisions to preserve the net operating losses of troubled corporations. Finally, the Article will propose an amendment to section 382 that would increase the likelihood that corporations will …

The Bildisco Case And The Congressional Response, James J. White

Articles

Section 365 of the Bankruptcy Reform Act authorizes one in bankruptcy to "assume or reject any executory contract ...of the debtor." The most frequent use of the section arises when a lessee goes into Chapter 11 and decides either to reject its real estate lease with its lessor or, if the lease is at a favorable rental rate, to assume it and assign it to another. A less frequent but more controversial use of section 365 is to reject one's collective bargaining agreement with his employees.