Bankruptcy Law Commons^™

The Effect Of Franchisor Bankruptcy On Executory Supply Contracts: Does The Franchisee Have A Remedy?, Matthew J. Burne

Barry Law Review

No abstract provided.

A Test Case In International Bankruptcy Protocols: The Lehman Brothers Insolvency, Jamie Altman

San Diego International Law Journal

Part II of this Article, explains the competing theories underlying bankruptcy systems: universalism and territorialism. Part III details various statutory solutions to international bankruptcy problems. Next, Part IV analyzes the provisions of the Lehman Protocol in depth. Part V then examines the precedent upon which the Lehman Protocol relies. Part VI assesses potential threats to the Protocol?s success. This leads to Part VII, which contains suggestions for future protocols. Finally, Part VIII concludes.

Strategic Liability In The Corporate Group , Richard Squire

Faculty Scholarship

The typical large corporation divides itself into numerous subsidiaries but then overrides the liability barriers between them by having the subsidiaries and the parent company cross-guarantee each other's major debts. Previous scholarly theories of the corporate group cannot explain why. The leading theory posits that the subsidiaries make it easier for creditors to evaluate risk because they enable each creditor to lend against a discrete asset pool within the broader enterprise. But any such efficiency would be undercut by the guarantees, which transmit credit risk across subsidiary boundaries. This Article argues that the combination of subsidiaries and intragroup guarantees reflects …

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

Faculty Scholarship

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 …

Lessons For Competition Law From The Economic Crisis: The Prospect For Antitrust Responses To The “Too-Big-To-Fail” Phenomenon, Jesse W. W. Markham, Jr.

Fordham Journal of Corporate & Financial Law

This article examines whether, and the extent to which, antitrust law could contribute to a broader regulatory effort to control the too-big-to-fail problem. The article begins by exploring the nature of the problem. Against this backdrop, it considers antitrust policy and rules to evaluate whether antitrust might play a meaningful role. The article concludes that antitrust law, if vigorously enforced with an emphasis on avoiding too-big-to-fail problems, can be a useful public policy tool to address the problem. However, it can come nowhere near solving it or preventing recurrences of recent systemic failures.

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

Michigan Law Review

Chrysler entered and exited bankruptcy in forty-two 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 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 in the …

Trusts Versus Corporations: An Empirical Analysis Of Competing Organizational Forms, A. Joseph Warburton

College of Law - Faculty Scholarship

This paper studies the effects of organizational form on managerial behavior and firm performance, from an empirical perspective. Managers of trusts are subject to stricter fiduciary responsibilities than managers of corporations. This paper examines the ramifications empirically, by exploiting data generated by a change in British regulations in the 1990s that allowed mutual funds to organize as either a trust or a corporation. I find evidence that trust law is effective in curtailing opportunistic behavior, as trust managers charge significantly lower fees than their observationally equivalent corporate counterparts. Trust managers also incur lower risk. However, evidence suggests that trust managers …

Collective Bargaining Agreements In Corporate Reorganizations, Andrew B. Dawson

Articles

Congress enacted § 1113 to the Bankruptcy Code in 1984 in order to establish a standard for the rejection of Collective Bargaining Agreements. But the statute's ambiguous language has caused a split between the Second and Third Circuits, and has precipitated a lengthy academic debate largely centered on the interpretation of one word: "necessary." This debate has focused on proper statutory interpretation as well as deeper concerns regarding the policy goals behind the Bankruptcy Code. The present study reports data that indicate that the different interpretations are irrelevant in practice. No matter how "necessary" is defined, the result is always …

Insuring Against The Risk Of Collusion In Corporate Bankruptcy Cases: The Uncharted Waters Of The Insured Vs. Insured Exclusion In Directors' And Officers' Liability Insurance Policies, Cullen Ann Drescher

West Virginia Law Review

No abstract provided.

Reply: Clawback To The Future, Miriam A. Cherry, Jarrod Wong

All Faculty Scholarship

In an earlier article also available on Scholarship Commons, Clawbacks: Prospective Contract Measures in an Era of Excessive Executive Compensation and Ponzi Schemes, Minnesota Law Review, Vol. 94, p. 368, 2009, Professors Miriam Cherry and Jarrod Wong set out an initial description and analysis of contractual clawback provisions. In this Reply, Profs. Cherry and Wong address three aspects of Michael Macchiarola's Response: its application of the clawback doctrine to the recoupment of executive compensation; the criticism that the clawbacks doctrine introduces latent subjectivity into contractual analysis; and the apparent operational difficulties in implementing clawbacks.

Panel 3: Bankruptcy & Restructuring Of Financial Institutions, Barry E. Adler, William A. Ackman, Marcia L. Goldstein, Arthur J. Gonzalez, Michael J. Krimminger, Edward R. Morrison

Faculty Scholarship

Barry Adler: Thank you all for being here. It is an honor for me to be on this panel and an honor to moderate it. Let me introduce our panel before we get started. William A. Ackman, the founder and CEO of Pershing Square Capital Management; Marsha Goldstein, a partner and chair of the business finance and restructuring department at Weil, Gotshal; the Honorable Arthur Gonzalez, a judge in the U.S. Bankruptcy Court for the Southern District of New York; and Ed Morrison, the Harvey Miller Professor of Law and Economics at Columbia Law School. Also on this panel is …

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 …

Clawbacks: Prospective Contract Measures In An Era Of Excessive Executive Compensation And Ponzi Schemes, Miriam A. Cherry, Jarrod Wong

All Faculty Scholarship

In the spring of 2009, public outcry erupted over the multi-million dollar bonuses paid to AIG executives even as the company was receiving TARP funds. Various measures were proposed in response, including a 90% retroactive tax on the bonuses, which the media described as a "clawback." Separately, the term "clawback" was also used to refer to remedies potentially available to investors defrauded in the multi-billion dollar Ponzi scheme run by Bernard Madoff. While the media and legal commentators have used the term "clawback" reflexively, the concept has yet to be fully analyzed. In this article, we propose a doctrine of …

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 …

The Success Of Chapter 11: A Challenge To The Critics, Elizabeth Warren, Jay Lawrence Westbrook

Michigan Law Review

Although Chapter 11 has served as a model for bankruptcy reform around the world, the conventional wisdom has been that it is characterized by a relatively low success rate and endless delay. The data from large samples of Chapter 11 cases filed in 1994 and 2002 demonstrate that this characterization is wrong. Nearly all troubled companies choose Chapter 11 over Chapter 7 liquidation, which means that the system serves a critical screening function to eliminate hopeless cases relatively quickly. Almost half the unsuccessful cases were jettisoned within six months and almost eighty percent were gone within a year The cases …

Bargaining Around Bankruptcy: Small Business Workouts And State Law, Edward R. Morrison

Faculty Scholarship

Federal bankruptcy law is rarely used by distressed small businesses. For every 100 that suspend operations, at most 20 file for bankruptcy. The rest use state law procedures to liquidate or reorganize. This paper documents the importance of these procedures and the conditions under which they are chosen using firm-level data on Chicago-area small businesses. I show that business owners bargain with senior lenders over the resolution of financial distress. Federal bankruptcy law is invoked only when bargaining fails. This tends to occur when there is more than one senior lender or when the debtor has defaulted on senior debt …

Report To The American Bankruptcy Institute: Prevalence Of Substantive Consolidation In Large Public Company Bankruptcies From 2000 To 2005, William H. Widen

Articles

No abstract provided.

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 …

Rule 2019: The Debtor's New Weapon, 42 J. Marshall L. Rev. 165 (2008), Michael Demarino

UIC Law Review

No abstract provided.

Bankruptcy Noir, James J. White

Articles

In Bankruptcy Fire Sales, Professor LoPucki and Dr. Doherty do two things. First, they present provocative data about the relative payoff to be had in Chapter 11 by a full reorganization compared with the payoff from a section 363 sale without a full reorganization. Second, they give a yet more provocative explanation for their data. Taking a page from Professor LoPucki's recent book, they blame the meager return that they observe on 363 sales on the unprincipled behavior of the lawyers, managers, creditors, investment bankers, and even judges involved in the sales. Messrs. LoPucki and Doherty's data appear to …

The Cra: A Welcome Anomaly In The Foreclosure Crisis, Warren W. Traiger

NYLS Law Review

No abstract provided.

Urban Development And Unequal Access To Housing Finance Services, Gregory D. Squires

NYLS Law Review

No abstract provided.

Bankruptcy's Rarity: An Essay On Small Business Bankruptcy In The United States, Edward R. Morrison

Faculty Scholarship

Most nations have enacted statutes governing business liquidation and reorganization. These statutes are the primary focus when policymakers and scholars discuss ways to improve laws governing business failure. This focus is misplaced, at least for distressed small businesses in the United States.

Evidence from a major credit bureau shows that over eighty percent of these businesses liquidate or reorganize without invoking the formal Bankruptcy Code.

The businesses instead invoke procedures derived from the laws of contracts, secured lending, and trusts. These procedures can be cheaper and speedier than a formal bankruptcy filing, but they typically require unanimous consent of senior, …

Who Needs Bankruptcy Law?, Edward R. Morrison

Faculty Scholarship

This essay summarizes four papers: “Bargaining Around Bankruptcy: Small Business Distress and State Law,” 38 Journal of Legal Studies 255 (2009); “Bankruptcy’s Rarity: An Essay on Small Business Bankruptcy in the United States,” 5 European Company & Financial Law Review 172 (2008); “Small Business Bankruptcy and the Bankruptcy Abuse and Consumer Protection Act of 2005,” A Report to the United States Small Business Administration (2007); and Douglas G. Baird & Edward R. Morrison, “Serial Entrepreneurs and Small Business Bankruptcies,” 105 Columbia Law Review 2310 (2005).

Enforcing Corporate Fiduciary Duties In Bankruptcy, Kelli A. Alces

Scholarly Publications

No abstract provided.

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 …

Managers’ Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Rutheford B. Campbell Jr., Christopher W. Frost

Law Faculty Scholarly Articles

The inherent conflict between creditors and shareholders has long occupied courts and commentators interested in corporate governance. Creditors holding fixed claims to the corporation's assets generally prefer corporate decision making that minimizes the risk of firm failure. Shareholders, in contrast, have a greater appetite for risk, because, as residual owners, they reap the rewards of firm success while sharing the risk of loss with creditors.

Traditionally, this conflict is mediated by a governance structure that imposes a fiduciary duty on the corporation's managers-its officers and directors-to maximize the value of the shareholders' interests in the firm. In this traditional view, …

Moving Toward A Federal Law Of Corporate Governance In Bankruptcy, Kelli A. Alces

Scholarly Publications

No abstract provided.

Casenote: The Emerald Casino Fiasco, 40 J. Marshall L. Rev. 1305 (2007), Cory Aronovitz, Jon Topolewski

UIC Law Review

No abstract provided.

The Citx Decision: Has The Tort Of Deepening Insolvency Gone Bankrupt, Ian T. Mahoney

Villanova Law Review (1956 - )

No abstract provided.