April 15, 2005
From the desk of Jane Galt:More on the bankruptcy bill
Two pieces from The Economist on our new bankruptcy bill, one comparing American bankruptcy law to Europe's, and the other on the relationship between entrepreneurship and personal bankruptcy (the latter requires a subscription). The first touches on the corporate side, which has been largely ignored in this debate, partly because the changes on the consumer side are much more radical, and partly because the corporate lobbies opposing the changes are a lot less popular and publicity-savvy than the consumer advocates pounding on the changes to personal bankruptcy. The Wall Street Journal's article has more detail, god bless it:
To speed up business bankruptcies, the measure specifies that companies filing for Chapter 11 protection will have a limit of 18 months to offer a reorganization plan. The bankruptcy code currently gives business filers the exclusive right to file their own reorganization plans within four months, but judges normally grant numerous extensions that allow companies to control the process for years.For instance, Owens Corning Corp. of Toledo, Ohio, has been operating under bankruptcy protection since late 2000 because of asbestos claims.
Now, if a business doesn't have its own reorganization plan within 18 months, creditors can step in with their proposal.
"Lawyers who advise companies, which are considering filing Chapter 11, may recommend that it would be desirable to do it now" before the bill goes into effect, said Philip Corwin, an outside attorney for the American Bankers Association.
A new provision also requires companies operating under bankruptcy protection to commit within 210 days after the filing whether to continue lease arrangements. This will particularly affect retailers that have expensive leases, including space in shopping malls. The provision is meant to prevent companies from avoiding rent payments during bankruptcy proceedings and then canceling leases after reorganization.
The measure also restricts special bonuses from being paid to retain executives during bankruptcy proceedings.
. . . but if you're really consumed with curiosity about the changes in corporate bankruptcy, this is one of the best explanations I've read. Posted by Jane Galt at April 15, 2005 6:05 AM | TrackBack | Technorati inbound links
Earlier this week I attended the LSTA Seminar in New York. The last session was on the bankruptcy changes and was presented by Kramer Levin attorneys. I got the distinct impression that due to some of the "technical amendments" the law of unintended consequences may kick in. One KL presenter even indicated that the change re: trade claims and vendor reclamations was a result of a misunderstanding by Congress of the testimony provided to them -- unintended indeed.
The same KL presenter posited that unsecured mezzanine debt could be adversely affected by the promotion of trade claims and that more companies might have trouble exiting bankruptcy because they won't be able to pay their administrative expenses.
At the end of the day, will companies and their lenders be more dramatically affected than consumers and the credit card companies? Better minds will have to answer this.
MB
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