The Bankruptcy Roundtable
Promoting the dissemination of academic and practitioner views of current bankruptcy issues
Latest News from the Bankruptcy Roundtable
Judge Rules SPAC Trust Account Sacred for Public Shareholders and Not Property of the Estate
Editor’s Note: This will be the HLS BRT’s last post of the semester and we look forward to resuming posts in late January 2025. By: Brian Schartz, P.C., Christian O. Nagler, P.C., Anna G. Rotman, P.C., Tabitha De Paulo, and Mac A. Bank (Kirkland & Ellis) Brian Schartz, P.C., Christian O. Nagler, P.C., Anna G. Rotman, P.C., Tabitha De Paulo, and Mac A. Bank (clockwise from top left) In an important win for SPAC investors, the U.S. Bankruptcy Court for the Eastern District of Texas held that the express terms of a SPAC’s trust agreement control whether a SPAC trust account is “property” of a debtor’s estate. Prior to filing for chapter 11 relief, SPAC-debtor Financial Strategies…
BRT Book Corner: Unjust Debts; The Financial Restructuring Tool Set
Editor’s Note: The Harvard Law School Bankruptcy Roundtable is excited to bring readers the first entry in a new semi-annual series, the BRT Book Corner, which features new and exciting books in the Bankruptcy and Restructuring fields. Unjust Debts: How Our Bankruptcy System Makes America More Unequal By Professor Melissa B. Jacoby (University of North Carolina School of Law) Professor Melissa B. Jacoby How should people evaluate the bankruptcy system? My academic scholarship has reflected a variety of lenses, from federalism and separation of powers, to economic efficiency. I also have observed the hybrid nature of big business bankruptcy – not entirely public or private, and the need for the system to balance a variety of objectives.…
Opting into opting out: Due process and opt-out releases
By Marshall S. Huebner and Kate Somers (Davis Polk & Wardwell, LLP) Marshall S. Huebner and Kate Somers Since the U.S. Supreme Court issued its ruling barring nonconsensual releases in Harrington v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024), there has been an even greater focus on other types of releases with respect to third parties, including both opt-out and opt-in releases. Provided that factors are satisfied, opt-out releases (which are a mechanic on a ballot or notice of nonvoting status that allows claimants to check a box to opt out of nondebtor releases in a reorganization plan) will likely be the best available pathway for effectuating the will of – and providing the best available recovery…
Does Global Insolvency Law Affect Cross-border Capital Flows?
By Professor Yeejin Jang (School of Banking and Finance, University of New South Wales, Sydney), Jenny Jihyun Tak (School of Banking and Finance, UNSW Sydney), and Professor Wei Wang (Smith School of Business, Queen’s University) Yeejin Jang, Jenny Jihyun Tak, and Wei Wang The restructuring of financially distressed multinational companies is often complex and costly because those companies must comply with both domestic and foreign bankruptcy laws in different jurisdictions. Poor coordination between domestic and foreign bankruptcy courts can be an important source of inefficiency associated with the restructuring process. The Model Law on Cross-border Insolvency proposed by the United Nations Commission on International Trade Law (UNCITRAL) aims to promote coordination among courts to improve court coordination…
Corporate Transparency Act: Are Bankruptcy Trustees and Court Appointed Receivers Obligated to File Beneficial Ownership Information Reports with FINCEN on Behalf of Debtor Entities?
By Mark Wisniewski* (Berger Singerman) Mark Wisniewski The Corporate Transparency Act (CTA) requires both domestic and foreign reporting companies1 to disclose information about the company and its beneficial owners. Beneficial owners are defined as those persons who own 25% or more of the company (through equity, stock, convertible debt, etc.) or exert significant control over its governance and operations (e.g., C-suite officers and “important decision-makers”)—to the federal government. The CTA aims to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities. Reporting companies formed or registered before January 1, 2024 must submit their initial Beneficial Ownership Information (BOI) report by January 1, 2025. The CTA is administered by Financial Crimes Enforcement Network, a bureau of…
Equity for Intermediaries: The Resolution of Financial Firms in Bankruptcy and Bank Resolution
This Essay considers the role of bankruptcy law in the legal ecosystem that regulates banks and other financial intermediaries.
Bankruptcy Court Frowns on SmileDirect’s Dismissal Request
By Timothy Q. Karcher, David M. Hillman, Vincent Indelicato, and Charles A. Dale (Proskauer Rose LLP) Timothy Q. Karcher, David M. Hillman, Charles A. Dale, and Vincent Indelicato (clockwise from top left) There is a growing trend of bankruptcy courts approving structured dismissals of chapter 11 cases following a successful sale of a debtor’s assets under section 363 of the Bankruptcy Code. A structured dismissal is a cost effective way for a debtor to exit chapter 11 and is an alternative to (a) confirming a post sale liquidating plan, which is expensive and not always viable, or (b) converting the case to chapter 7, which introduces significant uncertainty and unpredictability with the appointment of a chapter 7…
Everyone is Talking About Bankruptcy Directors
By Professor Robert W. Miller (University of South Dakota, Knudson School of Law) Professor Robert W. Miller The proliferation of bankruptcy directors represents a controversial shift in the corporate governance landscape. Delegating corporate decision-making to bankruptcy directors insulates conflicted transactions and claims from the traditional protections provided by derivative standing and entire fairness. Critics, however, have questioned their independence and cleansing effect. Are bankruptcy directors really independent when their role includes negotiation with and/or investigation into the same parties who appoint them? Should their decisions be given deference when their appointments are associated with lower recoveries for creditors? Bankruptcy directors’ salience is best illustrated by the numerous proposals made for evaluating their cleansing effect, including Professors Ellias,…
Changes to Confirmed “Toggle” Chapter 11 Plan Required No Additional Disclosure and Voting Where Creditors’ Rights Not Materially and Adversely Affected
By Mark A. Cody (Jones Day) This article was originally published in Practical Guidance. The views and opinions set forth herein are the personal views or opinions of the author; they do not necessarily reflect views or opinions of the law firm with which he is associated. Mark A. Cody Even after a bankruptcy court has confirmed a chapter 11 plan, changed circumstances prior to the plan’s implementation and “substantial consummation” might make alterations to the plan necessary. If a proposed change is significant enough, it may be deemed a plan “modification,” in which case the Bankruptcy Code may require that stakeholders be provided with additional disclosure regarding the alteration and an opportunity to vote on the…
The Alchemist’s Inversion
By Professor Samir Parikh (Wake Forest University School of Law) Professor Samir Parikh Litigation finance makes the world go round. The capital financiers provide is the lifeblood for plaintiffs’ firms and individual claimants attempting to run the litigation gauntlet in high-stakes battles with wealthy corporate entities. Third-party litigation funding in general litigation is well documented and frequently discussed. But the role financiers play and dynamics they create in billion-dollar, mass-tort cases have been overlooked. This exclusion is confusing. Modern mass torts – including those involving Purdue Pharma, Johnson & Johnson, 3M, and Boy Scouts of America – each impact hundreds of thousands of individuals, seizing headlines and driving legal and policy debates. Most mass-tort financiers are principled…
A Tale of Two Debt Burdens: A Day of Reckoning for China’s Debt-Fueled Infrastructure Development at Home and Abroad
By Steven T. Kargman (Kargman Associates) Steven T. Kargman In recent years, China has undertaken large-scale infrastructure development both at home and abroad. Overseas, China has undertaken massive infrastructure development around the globe under the umbrella of its widely heralded Belt and Road Initiative (BRI), a signature initiative of Xi Jinping’s tenure as the leader of China. Within China itself, a significant amount of infrastructure development has been carried out at the level of local governments, principally through entities known as Local Government Financing Vehicles (LGFVs). This infrastructure development has involved the incurrence of huge amounts of debt by LGFVs and sovereign borrowers under the BRI. Specifically, LGFVs are estimated to have incurred approximately nine trillion dollars…
Potential Resurrection of Creditor Derivative Suits on Behalf of Debtor LLCs
By Kate Scherling (Quinn Emanuel Urquhart & Sullivan, LLP) Kate Scherling Until recently, the judges of the Delaware bankruptcy court were in apparent agreement that Delaware state law acted to prohibit creditors from obtaining derivative standing to prosecute breach of fiduciary duty claims on behalf of the bankruptcy estate of a Delaware limited liability company. But in February 2024, Judge Craig T. Goldblatt broke ranks with his fellow judges in In re Pack Liquidating, LLC, No. 22-10797 (CTG), 2024 WL 409830 (Bankr. D. Del. Feb. 2, 2024), holding that the Delaware Limited Liability Company Act did not preclude the bankruptcy court from granting the official creditors’ committee standing to pursue estate causes of action (assuming it otherwise…
Fourth Circuit Holds that Bankruptcy Courts are not Limited by “Case and Controversy” Requirement of Article III
The U.S. Supreme Court has on occasion distinguished the bankruptcy courts’ power derived from Article I of the U.S. Constitution from the judicial power under Article III of the Constitution.
Delaware Bankruptcy Judge Declines to Order Arbitration of Key Pension Claims
In an opinion issued on March 27, 2024, in the In re Yellow Corporation, et. al. case, Judge Craig T. Goldblatt denied motions filed by multiemployer pension funds to arbitrate debtors’ objections to pension withdrawal liability claims in the United States Bankruptcy Court for the District of Delaware.
[Purdue Pharma Bankruptcy Series] Mass Torts, The Bankruptcy Power, and Constitutional Limits on Mandatory No-Opt-Outs Settlements
This essay explores the constitutional tensions produced by aggressive efforts to resolve mass-tort liability through federal bankruptcy proceedings, as illustrated by nonconsensual nondebtor (or third-party) releases and the so-called Texas Two-Step maneuver.
[Purdue Pharma Bankruptcy Series] What Happens After the Supreme Court’s Debacle in Purdue Pharma?
In its Purdue Pharma decision, the United States Supreme Court weakened the ability of mass tort victims to recover from injurers. The beneficiaries of this decision are fee-collecting attorneys and large institutions (such as state attorneys general) that can now divert money from victims to themselves during settlement negotiations.
[Purdue Pharma Bankruptcy Series] The End(s) of Bankruptcy Exceptionalism: The Future of Mass Tort Reorganization After Purdue Pharma
The Supreme Court’s recent opinion in Purdue Pharma ends the use of controversial nonconsensual third-party releases. It also ends a form of “bankruptcy exceptionalism” that has troubled observers for many years.
[Purdue Pharma Bankruptcy Series] Now Liquidate Purdue
It is disappointing that Purdue paid bankruptcy professionals nearly a billion dollars for a plan that violated the law. The Committee on Accountability warned this would happen.
Pledged Equity Proxy Rights and the Rise of the Board Flip
Distress happens, even at portfolio companies that once appeared financially solid. When it does, the portfolio company, its sponsor, and its lenders often enter into restructuring discussions in search of a consensual path forward, typically under the terms of a forbearance agreement.
The Rise of The Sponsor-in-Possession and Implications for Sponsor (Mis)Behavior
This Essay argues that changes in the capital markets and developments in the law and judicial practice have shifted the balance of power in many distress situations from creditors to financial sponsors.
Getting Public Information in Chapter 11
By Thomas Moers Mayer and Nancy M. Bello (Kramer Levin) Thomas Moers Mayer and Nancy M. Bello Companies in Chapter 11 must publicly report substantial financial information — indeed, more information should be reported or available publicly in Chapter 11 than outside of Chapter 11. Although public Chapter 11 debtors must continue to file Securities Exchange Commission (“SEC”) reporting, there are some exceptions. First, if the issuer meets certain criteria, the SEC will generally accept the debtor’s filing Form 8-Ks containing the monthly operating reports (“MORs”) required under Section 704 of the Bankruptcy Code and Bankruptcy Rule 2015 in lieu of annual and quarterly reports on Forms 10-K and 10-Q. Second, a debtor can generally opt to…
Bankruptcy Law in the Wake of the MeToo Movement
By Adi Marcovich Gross (Postdoctoral Fellow, Wharton Initiative on Financial Policy and Regulation; JSD Candidate, Columbia Law School) Adi Marcovich Gross The MeToo Movement has sparked a deluge of sexual misconduct-related lawsuits against corporations, prompting a number of entities, including The Weinstein Company, Boy Scouts of America, and USA Gymnastics, to seek bankruptcy protection. In my article, “Morally Bankrupt: Bankruptcy Law, Corporate Responsibility, and Sexual Misconduct,” I examine how corporations embroiled in such litigation use bankruptcy mechanisms strategically, as well as the social repercussions of such maneuvers. I argue that the way sexual misconduct claims are treated in bankruptcy directly harms existing victims and may undermine efforts to prevent future misconduct. Specifically, although bankruptcy offers a collective…
New York Bankruptcy Court: Setoff and Unjust Enrichment Cannot Be Asserted as Affirmative Defenses in Bankruptcy Avoidance Litigation
In a 2021 ruling, the U.S. Court of Appeals for the Second Circuit revived nearly 100 lawsuits seeking to recover fraudulent transfers made as part of the Madoff Ponzi scheme.
Academic Roundup 2023-2024 with Reorg
The Harvard Law School Bankruptcy Roundtable’s collaboration with Reorg continues with the first Reorg/BRT Academic Roundup.
Do Hedge Funds Exploit Material Nonpublic Information? Evidence from Corporate Bankruptcies
Hedge funds holding a large amount of unsecured debt of a financially distressed firm must decide whether to serve on the official unsecured creditors’ committee (UCC) that the U.S. Trustee appoints shortly after the firm files for Chapter 11 bankruptcy.