"Safe Harbor in Uncharted Waters"—Securities Law Exemptions Under Section 1125(e) of the Bankruptcy Code
Richard M. Cieri, David P. Porter, Scott J. Davido, and Heather Lennox, 51(2): 379–417 (Feb. 1996)
Securities issues often confront corporations seeking to reorganize under Chapter 11 of the Bankruptcy Code. This Article explores the safe harbor provided by section 1125(e) of the Bankruptcy Code and the stringent requirements of federal and state securities laws. It explains the history, purpose, and scope of section 1125(e) as an aid to securities practitioners in structuring transactions in the Chapter 11 context. Finally, it explores potential expansions of the safe harbor—i.e., to prepackaged plans of reorganization.
Peter V. Pantaleo and Barry W. Ridings, 51(2): 419–42 (Feb. 1996)
Determining a Chapter 11 debtor's reorganization value is a critical part of almost every Chapter 11 case. Unfortunately, neither the case law nor existing commentary adequately describes how this is done. This Article explains the main methodologies used in Chapter 11 for determining reorganization value and discusses the issues that often arise.
Successor Liability and Bankruptcy Sales
Michael H. Reed, 51(3): 653–75 (May 1996)
When a trustee or debtor attempts to sell assets of a bankruptcy estate, the bid-chilling effect of possible successor liability collides with the goal of maximizing the economic recovery of the estate. This Article considers whether the power of bankruptcy courts to sell property free and clear of interests provides an effective mechanism for insulating an asset purchaser from successor liabilities to which the purchaser would otherwise be exposed under nonbankruptcy law.
Rethinking the Role of Recourse in the Sale of Financial Assets
Peter V. Pantaleo (Reporter), Herbert S. Edelman, Frederick L. Feldkamp, Jason Kravitt, Walter McNeill, Thomas E. Plank, Kenneth P. Morrison, Steven L. Schwarcz, Paul Shupack, and Barry Zaretsky , 52(1): 159–98 (Nov. 1996)
The presence of recourse in the sale of a financial asset is generally thought to jeopardize the " true sale" treatment of the sale, especially in the event of the seller's bankruptcy. This Article analyzes the existing law and concludes that a transfer that qualifies as a sale under state law should be treated as a sale, even if the buyer retains recourse to the seller, so long as recourse is limited to warranting that the asset will perform in accordance with its terms.
Prepetition Waivers of the Automatic Stay: A Secured Lender's Guide
Michael St. Patrick Baxter, 52(2): 577–604 (Feb. 1997)
Secured lenders are turning increasingly to prepetition waivers of the automatic stay as a way to deal with the subsequent bankruptcy of a borrower. This Article discusses the factors that appear to be influential in the enforcement of prepetition stay waivers. The author contends that the single most important factor in the enforcement of a stay waiver is the debtor's prospect of reorganization. The author concludes that stay waivers are useful devices for secured lenders but counsels against their indiscriminate use.
Field v. Mans and Justifiable Reliance Under Section 523(a)(2)(A) of the Bankruptcy Code: Determining Who Is an Experienced Horseman
Carrie Bland, 52(2): 739–58 (Feb. 1997)
Prior to Field v. Mans, 516 U.S. 59 (1995), the circuit courts were in conflict over the standard of reliance required for a debt to be declared nondischargeable under section 523(a)(2)(A) of the Bankruptcy Code. Because of this conflict, the Supreme Court granted certiorari and subsequently held that the appropriate standard is justifiable reliance. This Note analyzes and discusses the Mans decision and the underlying case law, with particular emphasis on the reliance standard and the duty to investigate as described in the Restatement (Second) of Torts.
The Revlon Duties and the Sale of Companies in Chapter 11
Dennis F. Dunne, 52(4): 1333–57 (Aug. 1997)
Several commentators have argued that, whenever the sale or change of control of a Delaware company will be implemented through a Chapter 11 reorganization plan, state court decisions require the immediate termination of the debtor-in-possession's exclusivity periods in order to conduct an open auction of the company. This Article analyzes the existing law and concludes that automatic termination of the debtor-in-possession's exclusivity periods is not required because: (i) Revlon and its progeny do not impose an ironclad "no auction, no sale" rule under Delaware state law; and (ii) the checks and balances contained in the Bankruptcy Code embody state law fiduciary duty concepts and provide sufficient protection for creditors and stockholders while preserving the necessary flexibility for bankruptcy courts to tailor bidding procedures to fit the particular dynamics of each case and to remedy actual breaches of fiduciary duty.
The Interaction Between Mechanic's Lien Law and the Bankruptcy Code
James N. Duca, 53(4): 1283–1313 (Aug. 1998)
After a brief survey of the differences among state laws concerning mechanic's liens, this Article reviews the Bankruptcy Code provisions that affect the post-petition perfection and enforcement of those liens against real property owned or leased by bankruptcy debtors. The author discusses the procedures and elements necessary to qualify for the favored status of certain statutory liens under section 546 of the Code and the probable effect in bankruptcy of changes made by some states concerning judicial involvement in the lien creation process.
The Involuntary Bankruptcy Petition: The World's Worst Debt Collection Device?
Brad R. Godshall and Peter M. Gilhuly, 53(4): 1315–44 (Aug. 1998)
Creditors filing involuntary bankruptcy petitions face numerous hazards, and their expectations are rarely met. This Article analyzes the statutory requirements for a proper filing of an involuntary petition, reviews the ambiguities inherent in such requirements, and addresses many of the practical problems that arise in involuntary petition litigation. The Article also identifies the limited scenarios in which the filing of an involuntary petition may be warranted as a matter of business judgement.
Supreme Court's Rash Decision Fails to Scratch the Valuation Itch
Kathryn R. Heidt and Jeffrey R. Waxman, 53(4): 1345–80 (Aug. 1998)
Valuation in bankruptcy is a difficult matter. This Article examines and analyzes the problem of valuation in bankruptcy and the effect the Supreme Court's decision in Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997), will have on the subject. It also analyzes Rash and post- Rash decisions. It questions whether Rash will apply to other bankruptcy chapters. Finally, this Article examines proposals made by the National Bankruptcy Review Commission, laws that are currently before Congress, and offers other suggestions for reform.
Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One
G. Eric Brunstad, Jr., Mike Sigal, and William H. Schorling, 53(4): 1381–1452 (Aug. 1998)
This Article reviews several of the major proposals of the National Bankruptcy Review Commission pertaining to business bankruptcies and is based upon the results of a representative survey of the members of the Business Bankruptcy Committee of the Section of Business Law. The Article addresses proposals on the following seven topics: (i) altering the bankruptcy appellate structure; (ii) reforming the treatment of executory contracts in bankruptcy cases; (iii) codifying the new value exception to the absolute priority rule in Chapter 11 proceedings and modifying the rules governing a debtor's exclusive right to file a plan of reorganization; (iv) amending the classification rules in Chapter 11 proceedings for plans of reorganization; (v) altering the venue provisions for the filing of cases; (vi) establishing bankruptcy judges under Article III of the Constitution; and (vii) amending various sections of the Bankruptcy Code to provide new rules governing the treatment of mass future claims. Based upon the results of the survey, the Article evaluates each proposal in four critical respects: (i) whether the proposal responds to an actual need for reform in the current law; (ii) whether the proposal represents an improvement over existing law; (iii) whether the proposal could be improved in some way; and (iv) whether consideration of the proposal requires the evaluation of additional issues. The discussion includes commentary on the current state of the law. The authors hope that the survey analysis and discussion undertaken in the Article will help advance the debate in the area of business bankruptcies as well as assist in the process of substantive legal reform.
The Bankruptcy Code is Part of Every Contract: Minimizing the Impact of Chapter 11 on the Non-Debtor's Bargain
David S. Kupetz, 54(1): 55–92 (Nov. 1998)
The Bankruptcy Code embodies the power to alter contractual rights and is itself part of every contract. This Article explores the tension between the Code and the nondebtor's right to rely on the enforceability of a bargained-for waiver or forfeiture agreement. The author also provides suggestions for increasing the likelihood that a nondebtor party to a contract will continue to receive the benefit of its bargain after bankruptcy intervenes.