Bankruptcy Law Commons^™

Priority As Pathology: The Pari Passu Myth, Riz Mokal

ExpressO

This paper aims to analyse the pari passu principle of insolvency law (which provides that the creditors of a company in liquidation are to be paid rateably), and to ask how it relates to other principles available for the treatment of claims in corporate liquidation. The discussion reveals that the principle has rather limited effect in governing distributions of the insolvent's estate. Not only do various types of secured claim fall beyond its ambit, even unsecured claims are often exempt from its application. Nevertheless, the principle thrives both in judicial rhetoric and in academic arguments. For example, many a challenge …

The Search For Someone To Save: A Defensive Case For The Priority Of Secured Credit, Riz Mokal

ExpressO

The priority of secured credit has repeatedly and famously been attacked for allowing the exploitation of certain types of unsecured creditor. It has also been blamed for creating inefficiencies. This paper examines these arguments specifically as applied to this jurisdiction, and using both theoretical analysis and recent empirical data, suggests none of them can be sustained. It is argued that security is unlikely to lead to the exploitation of involuntary, ‘uninformed’, or ‘unsophisticated’ creditors, since the perverse incentives it allegedly creates for the debtor’s management are likely to be outweighed by the managers’ liquidation-related costs. It is then pointed out …

A Few Lines, David G. Epstein

American University Law Review

No abstract provided.

The Implications Of The Third Circuit's Armstrong Decision On Creative Corporate Restructuring: Will Strict Construction Of The Absolute Priority Rule Make Chapter 11 Consensus Less Likely?, Harvey R. Miller, Ronit J. Berkovich

American University Law Review

No abstract provided.

Testing The Limits Of Statutory Construction Doctrines: Deconstructing The 2005 Bankruptcy Act, John Rao

American University Law Review

No abstract provided.

The Bapcpa's Chilling Effect On Debtor's Councel, Alan Eisher

American University Law Review

No abstract provided.

Access To Justice: Consumer Bankruptcy, Richard I. Aaron

Utah Law Review

Bankruptcy is a privilege for the honest but unfortunate debtor; not for the knave or churl. All agree that bankruptcy should be available for those who are unable to pay their debts, but not for those who are just unwilling. The homilies are simple to state but not easy to apply. Why do consumers file bankruptcy? There are many explanations, all of them contentious and layered with disputed data. There simply is no definitive answer. Furthermore, as the following possible explanations demonstrate, Congress's choice to limit access to bankruptcy ignores the complexity of the question.

U.S. Corporate And Bank Insolvency Regimes: A Comparison And Evaluation, Robert R. Bliss, George G. Kaufman

ExpressO

In the U.S., the insolvency resolution of most corporations is governed by the federal bankruptcy code and is administered by special bankruptcy courts. Most large corporate bankruptcies are resolved under Chapter 11 reorganization proceedings. However, commercial bank insolvencies are governed by the Federal Deposit Insurance Act and are administered by the FDIC. These two resolution processes—corporate bankruptcy and bank receiverships—differ in a number of significant ways, including the type of proceeding (judicial versus administrative); the rights of managers, stockholders and creditors in the proceedings; the explicit and implicit goals of the resolution; the prioritization of creditors’ claims; the costs of …

The Authentic Consent Model: Contractarianism, Creditors' Bargain, And Corporate Liquidation, Riz Mokal

ExpressO

The first part of this article asks if the Creditors’ Bargain Model, long employed by insolvency scholars as the starting point for many an analysis, can explain or justify even the most distinctive and fundamental feature of insolvency law. After examining the defining features of the model’s construction, the role of self-interest and consent in it, and its ex ante position, it is concluded that the Bargain model can neither explain nor legitimate the coercive collective liquidation regime.

The second part of the article develops an alternative model to analyse and justify insolvency law. The starting premise is that all …

The Floating Charge – An Elegy, Riz Mokal

ExpressO

This paper argues that the usual way of conflating floating with fixed charges as small variations on a single theme – as priority-based devices differing only in degree – fundamentally misunderstands its true nature. The floating charge plays a distinctive role as a residual management displacement device which can only be effective if coupled with an appropriate set of fixed security that enables its holder to gather information about the competence of the debtor’s managers and to control their incentives to misbehave. The floating charge allows the debtor free use of its circulating assets while its management is doing well, …

On Fairness And Efficiency, Riz Mokal

ExpressO

What is the relationship between fairness, efficiency, accountability, and expertise? What role, if any at all, do these values play in answering the question whether a part of the law is legitimate? This paper provides an answer by introducing a distinction between the substantive and the procedural goals of any part of the legal system. Substantive goals are the ultimate ends of some part of the law, some values or objectives whose pursuit by that part of the law shows why it is desirable to have that law in the first place. Procedural goals are concerned with the methods the …

Administrative Receivership And Administration - An Analysis, Riz Mokal

ExpressO

This paper argues that the Enterprise Act 2002 has changed the way those dealing with distressed companies are required to behave much more significantly than most commentators realise. The motivation for this change lies in the ways in which administrative receivership is destructive of social value (in terms of unnecessary job losses and other resource misallocations). The paper identifies three such ways, all linked with the fact that receivership ties the office-holder’s duties to the interests of the debtor’s main bank. This is undesirable because the bank (a) is usually oversecured and thus has little incentive, once receivership is underway, …

Charges Over Chattels – Issues In The Fixed/Floating Jurisprudence, Stephen Atherton, Riz Mokal

ExpressO

Much of the recent debate as to the criteria which determine whether a charge is properly characterised as fixed or floating has revolved around charges over book debts or other receivables. Charges over chattels have received somewhat less attention, even though an attempt to create a fixed charge over chattels gives rise to interesting questions, some of which do not arise when the collateral consists simply of receivables. While some of these questions have received judicial attention in recent years, others are only now starting to be considered. In this paper, we provide an overview of some of the most …

The Valuation Of Distressed Companies - A Conceptual Framework, Michael Crystal Qc, Riz Mokal

ExpressO

It is often crucial to ascertain the value of a distressed company. Those interested in the company’s undertaking require this information to determine what should be done with the company’s business, and how the value in the company’s estate should be distributed amongst them. In this article, addressed primarily to the parties to corporate reorganisation proceedings in the UK and their advisers, we provide a conceptual framework within which these questions might be answered.

The first part of the article identifies the bases on which a company’s business might be valued. Drawing upon economic theory, empirical evidence, and the sophisticated …

Liquidation Expenses And Floating Charges - The Separate Funds Fallacy, Riz Mokal

ExpressO

In the context of the decision by the House of Lords in Buchler v. Talbot, and of the Government’s resolve legislatively to overturn that decision, this paper considers the nature of the charge and the mortgage, and asks what effect the creation of such security interests has on the property of the company. It argues that their Lordships appear to have displayed a misunderstanding of the nature of the charge, and might have created significant doctrinal confusion in the process. The paper then provides empirical evidence to suggest that floating charges are not usually taken in order to ensure priority …

The Myth Of The Rational Borrower: Behaviorism, Rationality And The Misguided Reform Of Bankruptcy Law, Edward J. Janger, Susan Block-Lieb

Faculty Scholarship

No abstract provided.

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

ExpressO

In this article, the authors consider the nature of corporate managers’ fiduciary duties in periods when the company is in financial distress. This matter is important not only to corporate managers, who need clear rules regarding their duties, but also to equity and debt investors, who must understand the nature of corporate fiduciary duties in order to price the capital that they contribute to the enterprise and allocate the financial risks of loss to the most efficient risk bearer from among the investors.

Unfortunately, courts – especially the important Delaware courts – have made a mess of all of this. …

Prevalence Of Substantive Consolidation In Large Bankruptcies From 2000 To 2004: Preliminary Results, William H. Widen

Articles

No abstract provided.

Fear Not The Asset Protection Trust, Adam J. Hirsch

Cardozo Law Review

No abstract provided.

Empirically Bankrupt, Bob Rasmussen

ExpressO

Empirical legal scholarship endeavors to resolve disputes that are indeterminate at the level of theory. The nature of empirical claims, however, requires that consumers of this work bring a healthy dose of skepticism to any of these projects. Three recent works in the area of corporate reorganizations illustrate how a project that appears on its face to settle scholarly debate can rest on choices that the researcher made rather than on the data itself. One of these works seeks to discredit proposals to make bankruptcy law a default rule rather than a mandatory rule, but it draws its data from …

Debtor Discharge And Creditor Repayment In Chapter 13, Scott F. Norberg

ExpressO

The consumer bankruptcy system plays an enormous albeit largely under appreciated role in the United States economy. There were nearly 1.6 million consumer bankruptcy filings in the United States in 2004 - more than twice the number just ten years earlier, and more than one filing for every 70 households in the country. Nearly a third of these filings were under Chapter 13 of the Bankruptcy Code. (Chapter 13 provides for individual debt readjustment pursuant to a repayment plan, whereas Chapter 7 provides for liquidation of assets to pay creditor claims.) Yet, little is known about what debtors and creditors …

Corporate Form And Substantive Consolidation, William H. Widen

ExpressO

This Article reformulates substantive consolidation doctrine in light of modern financing techniques. Building upon the author's research showing the prevalence of substantive consolidation in large public bankruptcies, it offers an economic account (based on Coase's theory of firm size) to explain why we should expect that the circumstances giving rise to substantive consolidation should be common (rather than rare as suggested by the rhetoric of case law). Extending the asset partitioning theory developed by Professors Hannsmann and Kraakman, it offers a model for looking at the corporate form within corporate groups, particularly in the insolvency context. The recent Third Circuit …

Bankruptcy And The Entitlements Of The Government: Whose Money Is It Anyway?, Ronald Mann

ExpressO

No abstract provided.

Optimizing Consumer Credit Markets And Bankruptcy Policy, Ronald Mann

ExpressO

No abstract provided.

Contract As Statute, Stephen J. Choi, G. Mitu Gulati

Michigan Law Review

The traditional model of contract interpretation focuses on the "meeting of the minds." Parties agree on how to structure their respective obligations and rights and then specify their agreement in a written document. Gaps and ambiguities are inevitable. But where contract language exists for the point in contention and a dispute arises as to the meaning of this language, courts attempt to divine what the parties intended. Among the justifications for deferring to the intent of the parties is the assumption that parties know what is best for themselves. Deference also arguably furthers autonomy values. Not all contracts and contract …

Toward A Federal Common Law Of Bankruptcy: Judicial Lawmaking In A Statutory Regime, Adam J. Levitin

ExpressO

Bankruptcy is a statutory system, yet it is replete with practices for which there is no direct authorization in the Bankruptcy Code. This article argues that the authorization for judicial creation of bankruptcy law beyond the provisions of the Code has been misidentified as the equity powers of bankruptcy courts. This misidentification has led courts to place inappropriate statutory and historical limitations on non-Code practices because of discomfort with unguided equitable discretion.

Both the statutory and historic limitations are problematic. The statutory authorization for the bankruptcy courts’ equitable powers appears to have been repealed by what one judge has called …

Extinguishing Security Interests: Secured Claims In Japanese Reorganization Law And Some Policy Implications To The U.S. Law, Wataru Tanaka

ExpressO

This Article examines how secured claims are treated in Japanese business reorganization law, especially in the Civil Rehabilitation Act (Minji saisei ho), which was enacted in 1999 as the new general reorganization regime in Japan. Unlike the U.S. Bankruptcy Act, the Civil Rehabilitation Act does not have automatic stay on secured claims, nor does it allow any modification of secured claims by the rehabilitation plans. However, the Civil Rehabilitation Act has a unique procedure to restrict the rights of secured creditors, which is called “the procedure of extinguishing security interests (tanpo-ken shometsu seikyu tetsuzuki).” This procedure permits a debtor to …

After The Dismissal Of An Involuntary Bankruptcy Petition: Attorney's Fees Awards To Alleged Debtors, Isabella C. Lacayo

Cardozo Law Review

No abstract provided.

Australian Insolvency Law And The 1992 Isda Master Agreement—Catalyst, Reaction, And Solution, Christopher J. Mertens

Washington International Law Journal

The reverberations of Enron’s financial collapse were heard on an international scale. Indeed, Enron Australia’s liquidation set off a flood of concern and speculation about the International Swaps and Derivatives Association’s (“ISDA”) model documentation for derivative transactions. A December 2003 opinion of the Supreme Court of New South Wales exposed a flaw in the ISDA 1992 Master Agreement. Two provisions of the agreement operate in tandem, creating a result which operates contrary to the clear meaning of the terms. This volatile interaction of the provisions effectively shifts the risk from the parties to the swap contract to the creditors of …

Say "Ahhh!": A New Approach For Determining The Cram Down Interest Rate After Till V. Scs Credit, Michael Elson

Cardozo Law Review

No abstract provided.