Category: Corporate Bankruptcy

  • Getting Ready for Uniform Commercial Code Reform?

    Posted by

    Melissa Jacoby

    2022 amendmentsIAs digital assets and emerging technologies become common in commercial transactions, state commercial law must rise to the challenge – that's the driving force behind a new set of amendments to the Uniform Commercial Code, including Article 9 governing secured transactions in personal property – such as in virtual currencies and nonfungible tokens.

    No state has enacted the amendments yet,* but prior reforms to Article 9, at least, have been remarkably successful at achieving broad enactment. Consider, for example, the visual of the 2010 amendments to Article 9. Blue=enacted!

    2010 amendments

    How to track developments? Here are some publicly available resources courtesy of the Uniform Law Commission:

    First, here is where to find the actual amendments as finally approved by the Uniform Law Commission and the American Law Institute. 

    Second, here is a summary. Note the mention at the bottom of transition rules for lenders who followed existing law in perfecting security interests, etc. (by the way, there is not a prospective uniform effective date for these amendments). 

    Third, videos! Here's one highlighting the changes for digital assets. And here's another on other matters covered in the amendments. 

    Fourth, here's where proposed bills and enactment information will be tracked.

    *According to the digital assets video, some states adopted earlier versions of part or all of these amendments (New Hampshire, Iowa, Nebraska, Indiana, Arkansas, and Texas) but are expected to update those to conform with the final versions. Wyoming and Idaho went their own way on commercial transactions in digital assets.  

  • Fake and Real People in Bankruptcy

    Posted by

    Melissa Jacoby

    This draft essay, Fake and Real People in Bankruptcy, just posted on SSRN, is considerably less far along than Unbundling Business Bankruptcy Law, posted last week. Fake and Real starts with a Third Circuit case that tends to be less well known: it upheld the dismissal of an individual bankruptcy filer whose primary asset was a home he had built with his own hands. Perhaps you will find that story relevant to current debates about what is permissible in large chapter 11 cases. Like Unbundling Business Bankruptcy Law, Fake and Real reflects some of my in-depth research on The Weinstein Company.  

    Here is the abstract: 

    This draft essay explores how the bankruptcy system is structurally biased in favor of artificial persons – for-profit companies, non-profit enterprises, and municipalities given independent life by law – relative to humans. The favorable treatment extends to foundational issues such as the scope and timing of permissible debt relief, the conditions to receiving any bankruptcy protections, and the flexibility to depart from the Bankruptcy Code by asserting that doing so will maximize economic value. The system's bias contributes to the "bad-apple-ing" of serious policy problems, running counter to other areas of law have deemed harms like discrimination to be larger institutional phenomena. These features also make bankruptcy a less effective partner in the broader policy project of deterring, remedying, and punishing enterprise misconduct.

  • Unbundling Business Bankruptcy Law

    Posted by

    Melissa Jacoby

    A long-in-process draft article has just become available to be downloaded and read here. Comments remain welcome.  The Weinstein Company bankruptcy features prominently in this draft article. 

    Every contract in America contains an invisible exception: different enforcement rules apply if a party files for bankruptcy. Overriding state contract law, chapter 11 of the federal Bankruptcy Code gives bankrupt companies enormous flexibility to decide what to do with its pending contracts. Congress provided this controversial tool to chapter 11 debtors to increase the odds that a company can reorganize. To promote this objective while also preventing abuse and protecting stakeholders, Congress embedded this tool and others in an integrated package deal, including creditor voting. The tool was not meant as a standalone benefit for solvent private parties to pluck from the process for their own benefit, like an apple from a tree.

    In recent decades, the chapter 11 package deal has been unbundled in practice, typically on grounds of economic urgency. While scholars and policymakers have attended to the quick going-concern sales of companies featured in unbundled bankruptcies, they have not sufficiently explored the challenges associated with a contract-intensive business.

    To help fill that gap, this draft article illustrates how the ad hoc procedures used to manage quick sales of contract-intensive businesses can undercut two major chapter 11 objectives: maximizing economic value and fair distribution. They amount to a wholesale delegation of a substantial federal bankruptcy entitlement to a solvent third party. In addition to the impact on economic value and distribution, this draft article also explores a Constitutional problem with this practice: it arguably exceeds the scope of the federal bankruptcy power.

     

  • Let’s Make Some Crypto Law!

    Posted by

    Stephen Lubben

    One of the undiscussed consequences of the spate of recent crypto bankruptcies – domestically including Celsius and Voyager – combined with Congress' inability to legislate is that the bankruptcy courts, namely those in the SDNY, will have a chance to make a lot of law regarding crypto.

    For example, is Tether a good? (the citation to the UCC is odd – that's not actually the law anywhere, right?).

     

  • 3M’s Aearo Technologies’ Bankruptcy: the Hoosier Hop

    Posted by

    Adam Levitin

    3M's earphone subsidiary, Aearo Technologies, filed for bankruptcy today in the Southern District of Indiana. This is looking like a really interesting case: it looks like a new generation of the Texas Two-Step strategy. Let's call it the Hoosier Hop. Here's the story.

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  • Tort Law, Social Policy… and Bankruptcy

    Posted by

    Melissa Jacoby

    DePaulI cannot tell you what to think about the fact that the long-running Clifford Symposium on Tort Law and Social Policy, at DePaul University College of Law in Chicago, kicks off with a bankruptcy panel this year.  The official title of the conference this year is Litigating the Public Good: Punishing Serious Corporate Misconduct. Much of the June 2-3 conference is scheduled to occur in person but online observation is available and free: register here. 

  • The Texas Two-Step? Just Don’t Go to the Dance

    Posted by

    Bob Lawless

    Suppose a company facing mass tort liability to U.S. citizens produced a piece of paper that read "Cook Islands Liability Extinguishment Corporation." The company then says to the tort victims, "We have formed this corporation under the law of the Cook Islands, which allows us to assign any liability we want there and extinguish it. And, that's exactly what we did with your tort claims." The legal response would surely be that the law of the Cook Islands does not govern the company's tort liability under U.S. law.

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  • Harmony or Mismatch? A virtual event on mass torts and bankruptcy on February 28

    Posted by

    Melissa Jacoby

    Just wanted to make sure Credit Slips readers were aware of this virtual event at noon Eastern/3 Pacific on February 28. Bonus: a link to a masterful analysis of the topic by Professor Elizabeth Gibson that the Federal Judicial Center published in 2005. (click here for information and registration)

    Event

  • Just posted: Other Judges’ Cases

    Posted by

    Melissa Jacoby

    This article has been in the works a long time. During the Detroit bankruptcy, I wrestled with some of its topics on Credit Slips.  

    The case studies involve bankruptcy. The mediators in those cases are life-tenured judges.

    The footnotes make it long; the text is short.  

    Other Judges' Cases remains in the edits stage and is scheduled to be published later this year.  

    Please read it. Thank you!

  • Non-Debtor Releases

    Posted by

    Adam Levitin

    I have an op-ed in Bloomberg Law about the abuse of non-debtor releases. Many chapter 11 attorneys argue that non-debtor releases are an essential all-purpose deal lubricant and that the excesses of a few cases—Purdue Pharma, Boy Scouts—shouldn't result in throwing out the baby with the bath water. I disagree. There's no question that non-debtor releases can grease a deal (and let's put aside the questionable practice of attorneys negotiating plans that give them releases as well). But so what? There's also a little thing called due process. It's only within the tunnel vision of chapter 11 that reorganization trumps all. Hopefully the Nondebtor Release Prohibition Act, which passed out of the House Judiciary Committee last month will become law and clarify the matter. 

    Indeed, are non-debtor releases actually so important for practice? Chapter 11 lived with them for years before Mansville and even after Mansville it was years before they started being used in non-asbestos cases. Indeed, can anyone actually point to a case where a debtor would have had to liquidate and jobs would have been lost but for non-debtor releases? Perhaps there is such a case, but if so, it's the exception.

    Take Purdue Pharma. What would have been the alternative to boughten releases for the Sacklers?  Perhaps a liquidating plan, but I'm not sure that it would have resulted in any job loss, just a going-concern sale. And the estate could have sold its own litigation claims against the Sacklers or put them into a litigation trust. To be sure, one might argue that the boughten releases for the Sacklers are a better deal economically for the estate, and that's the proper measure when considering a settlement of estate claims, but I do not see how the estate—or any bankruptcy judge—can constitutionally impose a settlement of creditors' direct claims against non-debtors. It doesn't comport with due process and it's pretty clearly an uncompensated taking.

    I'm sure some readers will disagree, and comments are welcome. Further affiant sayeth not.