VOLUME 11 • COLUMNS
ESTIMATING THE NEED FOR ADDITIONAL BANKRUPTCY JUDGES IN LIGHT OF THE COVID-19 PANDEMIC
Benjamin Iverson, Jared A. Ellias, and Mark Roe1BYU Marriott School of Business; University of California, Hastings College of the Law; and Harvard Law School. The authors thank Jacob Barrera, Denise Han, Jessica Ljustina, Spencer Kau, Victor Mungary, Julia Staudinger, and Sara Zokaei for research assistance. We earlier, at the very beginning of the COVID-19 crisis, wrote a report on the potential pressure on bankruptcy judicial capacity due to the Covid-19 crisis, on which this document is based. That report was endorsed by a group of bankruptcy academics and then forwarded to Congress. For recent Congressional action related to our report, see infra note 8.
In this Article, we present the first effort to use an empirical approach to bolster the capacity of the bankruptcy system during a national crisis—here, the COVID-19 crisis. We provide two analyses, one using data from May 2020, very early on in the crisis, and another using data from September 2020, closer to the publication of this Article. Our analysis is based on an empirical observation: Historically, an increase in the unemployment rate has been a leading indicator of a rise in bankruptcy filings. If this historical trend continues to hold, the May 2020 unemployment rate of 13.3% would have predicted a substantial increase in bankruptcy filings and the lower September 2020 level would still predict noticeably increased filings. Clearly, governmental assistance, the unique features of the COVID-19 pandemic, the possibility of a quick economic recovery, and judicial triage are likely to reduce the volume of bankruptcies and increase the courts’ capacity to handle those that occur. It is also plausible that the recent unemployment spike will be short-lived—indeed, by September 2020, the rate had declined to 7.9%. Further, medical solutions to the underlying pandemic—such as the recent initial distribution of an effective vaccine—would further reduce the pressure on the bankruptcy system. Yet, even assuming that the worst-case scenarios are averted, our analysis suggests that a substantial investment in the bankruptcy system resources should be considered, even if only on a standby basis.
VOLUME 7 • ISSUE 1 • PRINT
TOO IMPORTANT TO FAIL: BANKRUPTCY VERSUS BAILOUT OF SOCIALLY IMPORTANT NON-FINANCIAL INSTITUTIONS
Shlomit Azgad-Tromer
Systemically important financial institutions are broadly considered to impose a risk to the entire economy upon failure; thus taxpayers act upon their failure, providing them with an implied insurance policy for ongoing liquidity. Yet taxpayers frequently provide de facto liquidity insurance for non-financial institutions as well. Taxpayer money is used to rescue hospitals, utility providers, and major employers.
VOLUME 14 • ISSUE 1 • PRINT
THREE AGES OF BANKRUPTCY
Mark J. Roe
During the past century, three decision-making systems have arisen to accomplish a bankruptcy restructuring—judicial administration, a deal among the firm’s dominant players, and a sale of the firm’s operations in their entirety. Each is embedded in the Bankruptcy Code today, with all having been in play for more than a century and with each having had its heyday, its dominant age. The shifts, rises, and falls among decision-making systems have previously been explained by successful evolution in bankruptcy thinking, by the happenstance of the interests and views of lawyers that designed bankruptcy changes, and by the interests of those who influenced decision-makers. Here I argue that these broad changes also stem from baseline market capacities, which shifted greatly over the past century; I build the case for shifts underlying market conditions being a major explanation for the shifts in decision-making modes. Keeping these three alternative decision-making types clearly in mind not only leads to better understanding of what bankruptcy can and cannot do, but also facilitates stronger policy decisions today here and in the world’s differing bankruptcy systems, as some tasks are best left to the market, others are best handled by the courts, and still others can be left to the inside parties to resolve.
VOLUME 6 • ISSUE 2 • PRINT
BARGAINING BANKRUPT: A RELATIONAL THEORY OF CONTRACT IN BANKRUPTCY
Jonathan C. Lipson
This Article studies the growing use of contract in bankruptcy. Sophisticated “distress” investors (for example, hedge funds and private equity funds) increasingly enter into contracts amongst themselves and corporate debtors during bankruptcy in order to evade “mandatory” rules on the priority of distribu- tions, thus preferring themselves at the expense of other stakeholders (for example, employees of the corporate debtor). Bankruptcy courts that supervise these cases struggle with these priority-shifting contracts. They are asked to approve them, but have little theoretical or doctrinal guidance on how to assess them.
VOLUME 5 • ISSUE 1 • PRINT
SOVEREIGN DEBT RESTRUCTURING: EVALUATING THE IMPACT OF THE ARGENTINA RULING
Laura Alfaro
Recent rulings in the ongoing litigation over the pari passu clause in Argentinian sovereign debt instruments have generated considerable controversy. Some public sector participants and academic articles have suggested that the rulings will disrupt or impede future sovereign debt restructurings by encouraging holdout creditors to litigate for full payment instead of participating in negotiated exchange offers. This paper critically examines this claim and argues that the incentives for holdout litigation are limited because of (1) significant constraints on creditor litigation, (2) substantial economic and reputational costs associated with such litigation, and (3) the availability of contractual provisions and negotiating strategies that mitigate the debtor’s collective action problems. It also argues that the fact-specific equitable remedy in the current Argentina case was narrowly tailored to Argentina’s unprecedented disregard for court opinions and for international norms of negotiating sovereign debt restructurings and is therefore unlikely to be used in future debt restructurings.
VOLUME 5 • COLUMNS
WHY THE LACK OF INTEREST IN INTEREST? ANOTHER LOOK AT PREFERENCES AND SECURED CREDITORS
Samuel D. Krawiecz
The Bankruptcy Code (sometimes referred to herein as the Code) disallows preferential payments made to creditors. Preference law is “designed to prohibit insolvent debtors, on the eve of filing for bankruptcy, from paying off their debts held by ‘preferred’ creditors—those creditors whom the soon-to-be bankrupts wish to favor.” The preference rule has five elements. The payment must be (1) a transfer to a creditor, (2) for the benefit of an antecedent debt, (3) while the debtor was insolvent, (4) within ninety days of the filing of the petition (unless the creditor is an insider), and (5) the payment must “enable[] such creditor to receive more than such creditor would receive” in a Chapter 7 liquidation. This Article will analyze how the fifth and last element is applied, particularly with regard to fully secured creditors.
VOLUME 5 • COLUMNS
LOSING MOMENTIVE: A ROADMAP TO HIGHER CRAMDOWN INTEREST RATES
Evan D. Flaschen, David L. Lawton & Mark E. Dendinger
There has been a lot of press regarding the lengthy Momentive, bench ruling delivered in late 2014. In Momentive, the Bankruptcy Court for the Southern District of New York held that debtors could satisfy the “cramdown” requirements of section 1129(b) of the Bankruptcy Code by distributing to secured creditors replacement notes paying below-market interest rates based on small margins. Several months later, the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) issued an unpublished decision in which it took a more nuanced approach to cramdown interest rate calculation. Instead of identifying a defined range for acceptable margins, as was the case in Momentive, the Ninth Circuit BAP concluded that creditors should shoulder the evidentiary burden to prove the risk factors used to determine the appropriate cramdown rate. In the wake of Momentive, the Ninth Circuit BAP has offered undersecured creditors a roadmap to higher cramdown interest rates under the right circumstances.
VOLUME 5 • COLUMNS
FATALLY FOREIGN: EXTRATERRITORIAL RECOVERY OF AVOIDABLE TRANSFERS AND PRINCIPLES OF COMITY IN THE MADOFF SECURITIES SIPA LIQUIDATION PROCEEDING
Timothy Graulich, Brian M. Resnick & Kevin J. Coco
Extraterritorial application of the Bankruptcy Code and international comity require courts to examine congressional intent while balancing the competing interests of different jurisdictions. Absent contrary intent within the statute, debtors and trustees in cases under both SIPA and the Bankruptcy Code likely face an uphill battle in overcoming the presumption against extraterritoriality. The recent gravitation toward universalism and respect for foreign laws reinforces that presumption and seeks to establish international deference as the governing baseline.
VOLUME 5 • COLUMNS
MAKE-WHOLE CLAIMS AND BANKRUPTCY POLICY
Douglas P. Bartner and Robert A. Britton
Although the payment of make-whole amounts clearly may be enforced under applicable state law in many instances, there appears to be tension between a claim in bankruptcy for such a payment and public policies underlying the bankruptcy code, including maximizing recoveries and the fair treatment of all creditors. In this article, we will discuss the state of the law regarding the enforceability in bankruptcy proceedings of make-whole provisions, as well as policy considerations that suggest the beneficiaries of make-wholes may be unfairly enriched at the expense of other creditors.
VOLUME 3 • ISSUE 1 • PRINT
CHAPTER 13 DEBTORS’ HOME LOSS IN THE FORECLOSURE CRISIS
Joshua L. Boehm
VOLUME 2 • ISSUE 1 • PRINT
SOVEREIGN DEBT RESTRUCTURING OPTIONS: AN ANALYTIC COMPARISON
Steven L. Schwarcz
VOLUME 2 • ISSUE 1 • PRINT
SOVEREIGN DEBT RESTRUCTURING: PROBLEMS AND PROSPECTS
VOLUME 2 • COLUMNS
RESTRUCTURING SOVEREIGN DEBT UNDER LOCAL LAW: ARE RETROFIT COLLECTIVE ACTION CLAUSES EXPROPRIATORY?
Melissa A. Boudreau
The European sovereign debt crisis has generated a number of controversial restructuring proposals that would have seemed appropriate only for emerging markets just a few years ago, but now are among the few options available to sustain the Eurozone. The leading proposal involves legislation that would mandate collective action clauses in untendered bonds governed under local law. This Note evaluates whether enacting this legislation and utilizing it in a debt restructuring would engender successful investor claims of invalid expropriation against the sovereign in American courts, and concludes that a successful claim of invalid expropriation is unlikely.