Tag: Chapter 11

  • The Role of Chapter 11 Bankruptcy in Addressing the Consequences of COVID19.

    Posted by

    Jay Lawrence Westbrook

    Many businesses may require bankruptcy proceedings to assist in recovery from the CV Recession. In my view, the best legal approach to any Chapter 11 reforms necessitated by the emerging CV-induced economic crisis lies in building up from the Small Business Reorganization Act (SBRA) to cover more Small and Medium Enterprises (SME), rather than trying to adjust the general provisions of Chapter 11, the home of bankruptcies like General Motors and American Airlines. Our database at the Business Bankruptcy Project shows that in 2018 more than half of the businesses that filed in Chapter 11 in the Southern District of New York would fall under the temporary SBRA cap, $7.5 million.

    Most immediately, the recently voted funds for small business must be available in bankruptcy reorganization cases. We must remove any barrier to using them in that way. I start the study of Chapter 11 by reminding students that the clerk at the bankruptcy court does not hand out money. Bankruptcy does not produce funding, although it can help facilitate it in important ways. Thus there is no legal reform that will avoid the need for very substantial financing with implications far beyond reorganization procedures. Bankruptcy cannot help unless it can be used in connection with rescue funding.

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  • The Economics of Lehman

    Posted by

    Stephen Lubben

    So Lehman has commenced yet another adversary proceeding, this time to recover a preference. The alleged preference is for $206,000.

    The complaint has three attorneys on it:  two partners and an associate. The associate bills out at $630 per hour. 

    If the defendant can spend more than 325 hours on discovery — about four weeks (using the standard 80 hour workweek in NYC) — who is going to try the case?

    (And that's assuming the partners never look at the adversary again — and ignoring time already spent on the case).

  • Live-Blogging the Big-Bankruptcy Empirical Research Agenda (2): Defining Terms

    Posted by

    Jonathan Lipson

    Still at UCLA.

    Regardless of how you define chapter 11 success, selecting the information that should compose a chapter 11 database to help you figure out what works (and what doesn't) is often a much trickier problem than you might think.  Consider, for example, the simplest question:  what is a “turnaround manager?” 

    It’s a question you might want to be able to answer, because you might think that they do (or do not) make success (however defined) more likely.   The services of the  ZolfoCoopers and Alvarez and Marsals of the world  don't come cheap.  If they aren't improving outcomes, maybe they aren't worth the price.

    Yet, we know that the ZolfoCoopers and Marsals are not the only turnaround managers. For example, LoPucki observed that many companies in trouble may simply let senior management go, and “promote some subordinate lackey who is declared to be a turnaround expert.”  Is that person a "turnaround manager"?

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  • Live-Blogging the Big-Bankruptcy Empirical Research Agenda: Nothing Succeeds Like Success

    Posted by

    Jonathan Lipson

    UCLA Law Professor Lynn LoPucki has graciously agreed to permit me to live-blog the Big-Bankruptcy Empirical Research Agenda conference he has organized today at UCLA.

    For those few who don't know, the Bankruptcy Research Database is one of the most important tools available to scholars and practitioners interested in understanding patterns in  chapter 11 cases.  It captures a great deal of information about essentially every large public company that has commenced a chapter 11 case under the current Bankruptcy Code.

    The holy grail of all bankruptcy scholarship is figuring out whether a case was successful.  Conventional wisdom might say that confirming a chapter 11 plan—and paying the professionals in full—is good enough. 

    But, we know that many companies file again, despite having confirmed a plan, and that may not necessarily be evidence that the plan was a failure:  circumstances change, etc.  Conversely, the confirmed plan may, in hindsight, prove much worse than other possible deals: Perhaps a 363 sale would have produced greater recoveries for creditors.  

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  • What Would a Fannie/Freddie Conservatorship Look Like?

    Posted by

    Adam Levitin

    [Updated 9.8.08. Since I wrote this post, federal law has changed, as a banking law practitioner was kind enough to point out to me. Section 1367 of the Housing and Economic Recovery Act of 2008, Pub. L. 110-289, which became law on July 30, 2008, changes the GSE conservatorship provisions to ones that very closely track the bank conservatorship provisions of the Federal Deposit Insurance Act. In light of these (very needed) changes, the concerns I expressed in the post are no longer an issue.]

    One of the possible rescue options for Fannie Mae and Freddie Mac is a conservatorship.  But what would this look like?  The New York Times relates that "Officials said that [Treasury Secretary] Paulson wanted to convey the message that…a conservator would have to prepare a plan to restore the company to financial health, much like a company in Chapter 11 bankruptcy proceedings." 

    That’s the general idea, but the devil is very much in the details, as explained below the break.

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  • Bear’s Bankruptcy Alternative

    Posted by

    Adam Levitin

    Would a bankruptcy have been better for Bear than a $2/share sale? We don’t know. But I think a comment made by Alan Blinder, the noted Princeton economist, on the News Hour with Jim Lehrer this evening is telling precisely because it was wrong.

    Blinder noted that the sale was basically the same result as a bankruptcy because equity was largely wiped out. That’s true, but misses a very important point about bankruptcy: process matters.

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