Competitive Choice Theory and the Broader Implications of the Supreme Court's Analysis in Bank of America v. 203 North LaSalle Street Partnership
G. Eric Brunstad, Jr. and Mike Sigal, 54(4): 1475–1555 (Aug. 1999)
This Article analyzes the underlying rationale of the Supreme Court's recent decision in Bank of America National Trust & Savings Ass'n v. 203 North LaSalle Street Partnership , 526 U.S. 434 (1999), expanding the Court's normative observations regarding market choice and economic self-determination into a more comprehensive theory on how the provisions of Chapter 11 ought to be interpreted and applied. Conceiving the Chapter 11 process as a forum for complex decisionmaking, the authors' thesis is that the rules of the Chapter 11 process ought to be interpreted in accordance with what they call a "theory of competitive choice." This theory posits that the best decisions regarding what is to be done with bankrupt debtors, their obligations, and their assets are more likely to be realized if decisionmaking in the bankruptcy context is made to approximate decisionmaking in the context of financially healthy firms outside the bankruptcy arena. Adopting a market-oriented approach that recognizes the need for market regulation tailored to the special circumstances of insolvent firms, the authors offer a coherent way to interpret the rules of the Chapter 11 process in a manner that is consistent with the operation of commercial markets generally.
Consumer Bankruptcy Filers and Pre-Petition Consumer Credit Counseling: Is Congress Trying to Place the Fox in Charge of the Henhouse?
Howard B. Hoffman, 54(4): 1629–60 (Aug. 1999)
Consumer debtors, courts, and even Congress are turning their attention to consumer credit counseling as a viable alternative to consumer bankruptcy. However, the practice of consumer credit counseling is fraught with difficulties, even when practiced by nonprofit organizations. This Article explores whether legislation is necessary and presents several possible legislative reforms.
Competitive Choice Theory and the Unresolved Doctrines of Classification and Unfair Discrimination in Business Reorganizations Under the Bankruptcy Code
G. Eric Brunstad, Jr. and Mike Sigal, 55(1): 1–80 (Nov. 1999)
This Article applies the authors' theory of competitive choice, introduced in the August 1999 issue of The Business Lawyer, to analyze the unresolved doctrines of classification and unfair discrimination in Chapter 11 business reorganization cases. See G. Eric Brunstad, Jr. & Mike Sigal, Competitive Choice Theory and the Broader Implications of the Supreme Court's Analysis in Bank of America v. 203 North LaSalle Street Partnership, 54 BUS. LAW 1475 (1999). The authors' theory is that the best decisions regarding what is to be done with bankrupt debtors, their obligations, and their assets are more likely to be realized if decisionmaking in the bankruptcy context is made to approximate decisionmaking in the context of financially healthy firms outside the bankruptcy arena. Conceiving the Chapter 11 process as a forum for complex decisionmaking, the authors analyze how decisions regarding a firm's fate are made in nonbankruptcy settings and then identify some of the specific complications that arise in the insolvency context that both alter the decisionmaking landscape and likewise require special procedures to overcome the parties' incentives to make improvident choices that undermine the broader policies of Chapter 11 as a whole. As part of their analysis, the authors identify the role of the Code's classification and unfair discrimination doctrines in eliciting independent business judgment regarding the firm's fate, preventing inappropriate hold-out behavior, avoiding unnecessary costs, and preserving commercial expectations. In addition, after discussing the history of these two doctrines, together with their place within the larger fabric of the reorganization process, the authors propose a set of standards designed to define and enhance the doctrines' roles in facilitating the two recognized policies underlying Chapter 11 of preserving viable business enterprises and maximizing property available to satisfy the claims of creditors.
Post-Confirmation Jurisdiction in the Bankruptcy Courts: Does It Ever End?
Norman N. Kinel and Melissa Zelen Neier, 55(1): 81–108 (Nov. 1999)
"Jurisdiction generally and bankruptcy jurisdiction particularly are among the most misunderstood and misapplied concepts in the law." From that premise, this Article expresses the view that in the post-confirmation setting, the limits of bankruptcy jurisdiction have been particularly susceptible to misinterpretation. Although jurisdiction in the bankruptcy courts is, and should be, broadly construed during the course of a bankruptcy case in order to fulfill the bankruptcy purpose of protecting a debtor engaged in the process of reorganization, the authors' view is that this rationale does not justify a broad jurisdictional sweep post-confirmation. At that time, the former debtor, having been given its "fresh start," ought not be permitted to remain under the tutelage of the bankruptcy court except insofar as an action threatens consummation of the debtor's confirmed plan. Included in this Article is a discussion of the statutory bases and judicial interpretations of post-confirmation jurisdiction with a focus on cases that have tested the outer limits of such jurisdiction.
Bankruptcy and the Problems of Economic Futility: A Theory on the Unique Role of Bankruptcy Law
G. Eric Brunstad, Jr., 55(2): 499–591 (Feb. 2000)
This Article analyzes the essential reasons for having a federal system of bankruptcy law. The author's thesis is that bankruptcy law is necessary to address a number of unique problems (termed the "problems of economic futility") that arise in the context of a debtor's insolvency, including (i) an insolvent debtor's payment discriminations, (ii) an insolvent debtor's gratuitous transfers, (iii) the escalating, unrecoverable collection and monitoring costs associated with a debtor's insolvency, (iv) an insolvent debtor's increased incentives to delay debt repayment and engage in excessive risk-taking, (v) the difficulties involved in reconciling the heterogeneous rights and risk preferences of an insolvent debtor's creditors, (vi) the costs associated with the destruction of an individual debtor's autonomy and productivity incident to insolvency, and (vii) in the United States, certain positive and normative constraints arising from our peculiar federal system. The Article begins with analysis of the general treatment of legal obligations under nonbankruptcy legal systems and then identifies how bankruptcy law may alter this treatment in fundamental ways. The Article further contextualizes the discussion by placing the subject of bankruptcy law in historical perspective and, likewise, by identifying its three traditional functions: (i) debt collection, (ii) debt forgiveness, and (iii) debt adjustment. After using these functions to summarize the basic elements of the current Bankruptcy Code, the Article then proceeds to analyze the problems of economic futility, explaining why each is properly a bankruptcy question, as well as why the subject of bankruptcy law is properly a federal matter, not only from a constitutional perspective but also for reasons of pragmatic efficiency. The author leaves for discussion elsewhere, however, analysis of how bankruptcy law might best address the problems that explain its existence. Nevertheless, the discussion here is intended to provide anyone interested in bankruptcy law with a comprehensive understanding of the fundamental reasons for having such a law and, likewise, a broad historical sense of its origins and potential formulations.
Using Bankruptcy Law to Implement or Combat Hostile Takeovers of Targets in Chapter 11
Josef S. Athanas, 55(2): 593–623 (Feb. 2000)
Although most business lawyers are familiar with the strategies for implementing or combating hostile takeovers of targets outside of Chapter 11, few are familiar with the additional concerns that arise when the target is in Chapter 11. Meanwhile, investors have become less fearful of the bankruptcy process and more willing to attempt hostile takeovers of targets in Chapter 11. This Article provides a detailed review of the bankruptcy law weapons available to a hostile bidder and a debtor's management in their battle for control of the debtor. In particular, Part I provides an overview of the applicable legal principles; Part II discusses the use of claims trading to gain leverage and standing to file a competing plan; Part III discusses the role of nonbankruptcy corporate governance principles in the context of competing plan proposals; Part IV discusses the debtor's use of its exclusive right to file a plan to combat a hostile takeover in bankruptcy; and Part V discusses issues arising when competing plans are proposed, including the requirements that plans be proposed in, and that votes be cast in, good faith.
Licensing Intellectual Property and Technology from the Financially Troubled or Startup Company: Prebankruptcy Strategies to Minimize the Risk in a Licensee's Intellectual Property and Technology Investmentg
Richard M. Cieri and Michelle M. Morgan, 55(4): 1649–98 (Aug. 2000)
In today's new economy, intellectual property and technology industries are booming. As a result, companies and financial institutions increasingly are presented with new business and investment opportunities with high-tech companies. Although the potential return on such a business relationship or investment may be high, so also is the risk that the high tech company will experience financial difficulties. A company or financial institution considering a business relationship or investment with a high-tech company thus should recognize this risk and take steps to protect its intellectual property and technology investment. This Article summarizes the potential risks facing a company or financial institution doing business with a high-tech company and suggests actions that may be taken to protect this intellectual property and technology investment.
2000 Mendes Hershman Student Writing Contest Prize Essay:
Rethinking Capital Adequacy: The Basle Accord and the New Framework
Heath Price Tarbert, 56(2): 767 (Feb 2001)
When the Basle Committee on Banking Supervision promulgated its Basle Capital Accord of 1988, the face and scope of international banking regulation changed forever. Designed to protect bank insolvency by encouraging uniform capital ratios for commercial lending institutions, the Accord's implementation caused major complications throughout the global economy. More than a decade after the Basle Accord, the Basle Committee produced A New Capital Adequacy Framework to largely replace the existing regime. Although the new rules will mitigate some of the current flaws in capital adequacy regulation, they will unfortunately fail to ameliorate the bulk of the "sins" committed in 1988, and with their new emphasis on rating agencies and internal models, introduce further dilemmas as well. Instead, regulators should consider allowing the market to force banks to make prudent lending decisions rather than mandating rigid standards that encourage banks to engage in imprudent regulatory arbitrage.
First Report of the Select Advisory Committee on Business Reorganization
American Bar Association Business Bankruptcy Committee, Select Advisory Committee on Business Reorganization (SABRE) , 57(1): 163 (Nov. 2001)
Annotated List of Resources
American Bar Association Business Bankruptcy Committee, Select Advisory Committee on Business Reorganization (SABRE) , 57(1): 245 (Nov. 2001)