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Corporate reorganization

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Full-Text Articles in Law

Insulation By Separation: When Dual-Class Stock Met Corporate Spin-Offs, Young Ran Kim, Geeyoung Min Feb 2019

Insulation By Separation: When Dual-Class Stock Met Corporate Spin-Offs, Young Ran Kim, Geeyoung Min

Utah Law Faculty Scholarship

The recent rise of shareholder engagement has revamped companies’ corporate governance structures so as to empower shareholder rights and to constrain managerial opportunism. Notwithstanding the general trend, this Article uncovers corporate spin-off transactions — which divide a single company into two or more companies — as a unique mechanism that insulates the management from shareholder intervention. In a spin-off, the company’s managers can fundamentally change the governance arrangements of the new spun-off company without being subject to monitoring mechanisms, such as shareholder approval or market check. Those changes often empower managers over shareholders. Furthermore, most spin-off transactions enjoy tax benefits. …


Jevic's Promise: Procedural Justice In Chapter 11, Pamela Foohey Jan 2018

Jevic's Promise: Procedural Justice In Chapter 11, Pamela Foohey

Articles by Maurer Faculty

In this Response to Jonathan Lipson's article, The Secret Life of Priority: Corporate Reorganization After Jevic, 93 Wash. L. Rev. 631 (2018)), I focus on Czyzewski v. Jevic Holding Corp.'s implications for procedural justice and corporate reorganization. In his article, Lipson explicitly links the chapter 11 process with the Bankruptcy Code’s substantive rules about priority, crafting a forceful argument about what procedural values the U.S. Supreme Court sought to uphold when it penned Jevic. In doing so, Lipson expounds on a broader truth about the co-option of corporate reorganization’s process in the name of value preservation. Procedural justice teaches that …


Foreword: Bankruptcy’S New And Old Frontiers, William W. Bratton, David A. Skeel Jr. Jan 2018

Foreword: Bankruptcy’S New And Old Frontiers, William W. Bratton, David A. Skeel Jr.

All Faculty Scholarship

This Symposium marks the fortieth anniversary of the enactment of the 1978 Bankruptcy Code (the “1978 Code” or the “Code”) with an extended look at seismic changes that currently are reshaping Chapter 11 reorganization. Today’s typical Chapter 11 case looks radically different than did the typical case in the Code’s early years. In those days, Chapter 11 afforded debtors a cozy haven. Most everything that mattered occurred within the context of the formal proceeding, where the debtor enjoyed agenda control, a leisurely timetable, and judicial solicitude. The safe haven steadily disappeared over time, displaced by a range of countervailing forces …


The Empty Idea Of “Equality Of Creditors”, David A. Skeel Jr. Jan 2018

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 …


To Be Creditor Or To Be Shareholder, That Is The Question: Is The Debt-For-Equity Swap Creditors’ Financial Suicide?, Jongho Kim Dec 2017

To Be Creditor Or To Be Shareholder, That Is The Question: Is The Debt-For-Equity Swap Creditors’ Financial Suicide?, Jongho Kim

The Journal of Business, Entrepreneurship & the Law

This Article deals with debt-for-equity swap-related issues in Korean corporate restructuring procedures. Debt-for-equity swaps were widely employed during the Latin American foreign debt restructuring process, but the Korean case is slightly different. Because the creditors of reorganizing corporations are mainly Korean domestic financial institutions rather than foreign creditors, this type of financial scheme is applied under local law. The following examines the legal aspects of debt-for-equity swaps, which have been promoted as a way to eliminate excessive insolvent loans and financial debts (and stood in the way of restructuring, via IMF bail-out funds). It also discusses how a debt-for-equity swap …


A Good Old Habit, Or Just An Old One? Preferential Tax Treatment For Reorganizations, Yariv Brauner Apr 2016

A Good Old Habit, Or Just An Old One? Preferential Tax Treatment For Reorganizations, Yariv Brauner

Yariv Brauner

This article proposes to repeal the preferential tax treatment of certain merger and acquisition transactions known as "reorganizations," and tax them like all other sales or exchanges. In the last 80 years this preference has been a cornerstone of our tax system. It is also one of the most stable rules in the tax code. Nevertheless, its normative justification is weak, and has never been rigorously debated in the legal literature. This article rejects the stated rationale for this rules - that such transactions trigger insufficient realization and therefore it is both unfair and impractical to currently tax them. It …


Sales Or Plans: A Comparative Account Of The "New" Corporate Reorganization, Stephanie Ben-Ishai, Stephen J. Lubben Sep 2015

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 …


Examining Success, Jonathan C. Lipson Feb 2015

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 …


Helvering V. Gregory: All The Perspectives From Which Learned Hand Was Wrong, Anthony P. Polito Jan 2014

Helvering V. Gregory: All The Perspectives From Which Learned Hand Was Wrong, Anthony P. Polito

Akron Tax Journal

At a fundamental level, this Article is about interpretation. The best way for a court to remain faithful to a complicated statute reflecting a delicate legislative compromise is to enforce its language literally without introducing extraneous tests or elements that cannot be found in the statutory language. Yet, it is important to be clear that it approaches the question from an ex ante perspective, from where things stood before Learned Hand's famous opinion.

This Article is not a call for the judicial reversal of Hand's opinion. Given the value of the predictability of established expectations as to statutory meaning, stare …


When Should Bankruptcy Be An Option (For People, Places Or Things)?, David A. Skeel Jr. Jan 2014

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,” …


Bankruptcy And Economic Recovery, Thomas H. Jackson, David A. Skeel Jr. Jul 2013

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 …


Economics Of Bankruptcy – Introduction, Edward R. Morrison Jan 2013

Economics Of Bankruptcy – Introduction, Edward R. Morrison

Faculty Scholarship

This essay surveys important contributions to the economics of bankruptcy. It is an introductory chapter for a forthcoming volume (from Edward Elgar Press) that compiles the work of legal scholars as well as economists working in the field of corporate finance. The essay begins with the foundational theories of Baird, Jackson, and Rea and then collects scholarly work extending, testing, or revising those theories. At various points I identify questions that merit further study, particularly empirical testing.


The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner Jan 2011

The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company experiences financial distress, a control contest often follows. Management fights to remain in control of the company, and shareholders, creditors and others try to influence management’s exercise of that control—or wrest it away. This is not a new phenomenon. The degree of influence now exerted by corporate stakeholders in the distressed context, however, is strikingly different than in the past. Recent headlines highlight that stakeholder control issues are at the forefront of financially-distressed situations large and small. The U.S. government, as creditor, dictated the terms of Chrysler’s and General Motors’ bankruptcies. It also demanded and received preferred …


The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner Mar 2010

The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner

Michelle M. Harner

When a company experiences financial distress, a control contest often follows. Management fights to remain in control of the company, and shareholders, creditors and others try to influence management’s exercise of that control—or wrest it away. This is not a new phenomenon. The degree of influence now exerted by corporate stakeholders in the distressed context, however, is strikingly different than in the past. Recent headlines highlight that stakeholder control issues are at the forefront of financially-distressed situations large and small. The U.S. government, as creditor, dictated the terms of Chrysler’s and General Motors’ bankruptcies. It also demanded and received preferred …


Bankruptcy Reorganizations And The Troubling Legacy Of Chrysler And Gm, Ralph E. Brubaker, Charles J. Tabb Feb 2010

Bankruptcy Reorganizations And The Troubling Legacy Of Chrysler And Gm, Ralph E. Brubaker, Charles J. Tabb

Ralph E. Brubaker

BANKRUPTCY REORGANIZATIONS AND THE

TROUBLING LEGACY OF CHRYSLER AND GM

Ralph Brubaker

University of Illinois College of Law

Charles Jordan Tabb

University of Illinois College of Law

Abstract:

The Chrysler and General Motors bankruptcy reorganizations represent the culmination of a sea-change in corporate restructuring practice that has occurred largely over the course of just the past decade. A bankruptcy reorganization has traditionally been effectuated though a chapter 11 plan of reorganization, with elaborate requirements for disclosure, creditor voting, and allocation of stakes in the reorganized debtor entity’s new capital structure among creditors and owners. Such an internal boot-strap reorganization, though, …


Bankruptcy Reorganizations And The Troubling Legacy Of Chrysler And Gm, Ralph E. Brubaker Feb 2010

Bankruptcy Reorganizations And The Troubling Legacy Of Chrysler And Gm, Ralph E. Brubaker

Ralph E. Brubaker

BANKRUPTCY REORGANIZATIONS AND THE

TROUBLING LEGACY OF CHRYSLER AND GM

Ralph Brubaker

University of Illinois College of Law

Charles Jordan Tabb

University of Illinois College of Law

Abstract:

The Chrysler and General Motors bankruptcy reorganizations represent the culmination of a sea-change in corporate restructuring practice that has occurred largely over the course of just the past decade. A bankruptcy reorganization has traditionally been effectuated though a chapter 11 plan of reorganization, with elaborate requirements for disclosure, creditor voting, and allocation of stakes in the reorganized debtor entity’s new capital structure among creditors and owners. Such an internal boot-strap reorganization, though, …


Sales Or Plans: A Comparative Account Of The "New" Corporate Reorganization, Stephanie Ben-Ishai, Stephen J. Lubben Jan 2010

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

Articles & Book Chapters

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 …


Assessing The Chrysler Bankruptcy, Mark J. Roe, David A. Skeel Jr. Jan 2010

Assessing The Chrysler Bankruptcy, Mark J. Roe, David A. Skeel Jr.

All Faculty Scholarship

Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred …


Simultaneous Distress Of Residential Developers And Their Secured Lenders: An Analysis Of Bankruptcy & Bank Regulation, Sarah P. Woo Aug 2009

Simultaneous Distress Of Residential Developers And Their Secured Lenders: An Analysis Of Bankruptcy & Bank Regulation, Sarah P. Woo

Sarah P Woo

With falling home prices and home foreclosures currently acknowledged as a severe problem in the U.S., more attention needs to be paid to the contributing phenomenon of residential developers undergoing liquidation, which has left behind a trail of partially-completed or abandoned properties. In order to understand this phenomenon, we analyzed 222 residential developers that filed Chapter 11 bankruptcy petitions between November 2007 and December 2008. We find that only a very small proportion of these developers, as compared to previous similar large studies, confirmed a reorganization plan. Most cases ended in liquidations. In the sample, 72.5% of the cases showed …


Bankruptcy Phobia, David A. Skeel Jr. Jul 2009

Bankruptcy Phobia, David A. Skeel Jr.

All Faculty Scholarship

As the recent economic crisis has unfolded, bankruptcy has offered possible solutions at several key junctures. The first of these solutions, often referred to as mortgage modification, was geared toward homeowners who faced the loss of their homes in the months—now several years—since the start of the subprime crisis On the corporate side, Chapter 11 was an obvious alternative when large nonbank financial institutions like Bear Stearns and AIG stumbled in 2008. But regulators repeatedly balked, and the one exception to the avoidance of bankruptcy at all costs—Lehman Brothers—was anomalous. This aversion to bankruptcy, which seems to pervade all sides …


Creditor Control And Conflict In Chapter 11, Kenneth M. Ayotte, Edward R. Morrison Jan 2009

Creditor Control And Conflict In Chapter 11, Kenneth M. Ayotte, Edward R. Morrison

Faculty Scholarship

We analyze a sample of large privately and publicly held businesses that filed Chapter 11 bankruptcy petitions during 2001. We find pervasive creditor control. In contrast to traditional views of Chapter 11, equity holders and managers exercise little or no leverage during the reorganization process. 70 percent of CEOs are replaced in the two years before a bankruptcy filing, and few reorganization plans (at most 12 percent) deviate from the absolute priority rule to distribute value to equity holders. Senior lenders exercise significant control through stringent covenants, such as line-item budgets, in loans extended to firms in bankruptcy. Unsecured creditors …


Bankruptcy Boundary Games, David A. Skeel Jr. Jan 2009

Bankruptcy Boundary Games, David A. Skeel Jr.

All Faculty Scholarship

For the past several decades, Congress has steadily expanded the exclusion of securities market operations from core bankruptcy protections. This Article focuses on three of the most important of these issues: the exclusion of brokerage firms from Chapter 11; the protection of settlement payments from avoidance as preferences or fraudulent conveyances; and the exemption of derivatives from the automatic stay and other basic bankruptcy provisions. In Parts I, II and III of the Article, I consider each of the issues in turn, showing that each has had serious unintended consequences. Both Drexel Burnham and Lehman Brothers evaded the brokerage exclusion, …


Competing Narratives In Corporate Bankruptcy: Debtor In Control Vs. No Time To Spare, David A. Skeel Jr. Jan 2009

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 …


Chrysler, Gm And The Future Of Chapter 11, Edward R. Morrison Jan 2009

Chrysler, Gm And The Future Of Chapter 11, Edward R. Morrison

Faculty Scholarship

Although they caused great controversy, the Chrysler and GM bankruptcies broke no new ground. They invoked procedures that are commonly observed in modern Chapter 11 reorganization cases. Government involvement did not distort the bankruptcy process; it instead exposed the reality that Chapter 11 offers secured creditors – especially those that supply financing during the bankruptcy case – control over the fate of distressed firms. Because the federal government supplied financing in the Chrysler and GM cases, it possessed the creditor control normally exercised by private lenders. The Treasury Department found itself with virtually the same, unchecked power that the FDIC …


Rationalizing The Taxation Of Reorganizations And Other Corporate Acquisitions, Herwig J. Schlunk Jan 2007

Rationalizing The Taxation Of Reorganizations And Other Corporate Acquisitions, Herwig J. Schlunk

Vanderbilt Law School Faculty Publications

This article examines the taxation of human shareholders in the case of mergers and acquisitions. Currently, the relevant law is extraordinarily complex, utterly inconsistent, and in many instances arguably unfair. There are really only two plausible ways to cure these ills. The first would involve moving to a tax system with more fulsome gain recognition, most likely in the form of mark-to-market taxation. This option is not in my opinion feasible (either technically or what is perhaps more important, politically). Accordingly, the second potential cure, moving to a tax system with less gain recognition, merits attention. In this article, I …


Recharacterization And The Nonhindrance Of Creditors, David A. Skeel Jr., Georg Krause-Vilmar Mar 2006

Recharacterization And The Nonhindrance Of Creditors, David A. Skeel Jr., Georg Krause-Vilmar

All Faculty Scholarship

Using a 1977 article by Robert Clark as the starting point, this article attempts to shed new light on the question of whether and when shareholder loans to her company should be either equitably subordinated or, as courts have done in a few recent cases, recharacterized as equity. In its emphasis on the particular issue of shareholder loans, the article has a narrower compass than Clark’s article, which uses a four-part typology to explore the relationship among fraudulent conveyance law, equitable subordination, veil piercing and dividend restrictions. But the article also expands Clark’s analysis in several respects. The most important …


A Good Old Habit, Or Just An Old One? Preferential Tax Treatment For Reorganizations, Yariv Brauner Jan 2004

A Good Old Habit, Or Just An Old One? Preferential Tax Treatment For Reorganizations, Yariv Brauner

UF Law Faculty Publications

This article proposes to repeal the preferential tax treatment of certain merger and acquisition transactions known as "reorganizations," and tax them like all other sales or exchanges. In the last 80 years this preference has been a cornerstone of our tax system. It is also one of the most stable rules in the tax code. Nevertheless, its normative justification is weak, and has never been rigorously debated in the legal literature. This article rejects the stated rationale for this rules - that such transactions trigger insufficient realization and therefore it is both unfair and impractical to currently tax them. It …


Section 1031 And Proximate And Midstream Business Transactions, Brad Borden Nov 2003

Section 1031 And Proximate And Midstream Business Transactions, Brad Borden

Bradley T. Borden

Section 1031 exchanges frequently occur in proximity to business transactions (i.e., entity formations, mergers, divisions, and dissolutions). Although section 1031 exchanges and many business transactions can be tax free, the proximity of such transactions often presents challenging legal and theoretical questions. In fact, depending on the order of the transactions, taxpayers may lose the tax-free treatment of the exchange or of the proximate business transaction. This Article examines the tax consequences and theoretical aspects of section 1031 exchanges and proximate business transactions.


Rupa And Former Partners: Cutting The Gordian Knot With Continuing Partnership Entities, Robert W. Hillman Apr 1995

Rupa And Former Partners: Cutting The Gordian Knot With Continuing Partnership Entities, Robert W. Hillman

Law and Contemporary Problems

Passage of the Revised Uniform Partnership Act (RUPA) brought change in the treatment of partnerships as entities rather than aggregates of their members. The nature of the Gordian knot that binds individuals associated in partnership and the lingering ties between individuals formerly associated in partnership are examined, and the hidden costs of continuity that RUPA imposes on withdrawing partners are evaluated.


Adequate Protection And Administrative Expense: Toward A Uniform System For Awarding Superpriorities, Julia A. Goatley Jun 1990

Adequate Protection And Administrative Expense: Toward A Uniform System For Awarding Superpriorities, Julia A. Goatley

Michigan Law Review

Part I of this Note reviews the legislative history of relevant Code sections and the Code language that pertain to the granting of adequate protection. Section 361 of the Code provides for three types of adequate protection. Sections 362, 363, and 364 set out instances when actions by the trustee that result in a decrease in the value of a secured party's interest require the provision of adequate protection. Finally, sections 503 and 507 designate circumstances when prepetition secured creditors are eligible to receive administrative expenses. Section 507(b) authorizes allowance of an administrative expense claim when the adequate protection provided …