Analysis: Ever-Shorter U.S. Bankruptcies Have Creditors Scrambling

Financially distressed companies that file for U.S. bankruptcy are emerging from court proceedings more quickly than ever, lowering legal costs but also forcing junior creditors to scramble to protect their interests, Reuters reported yesterday. In 2016, the average chapter 11 case took 7.3 months, the quickest ever and less than half the average in 2013, according to data compiled for Reuters from Bankruptcydata.com, which monitors public company filings dating back to 1990. Back then, the median case length was 16.1 months. Legal strategies, such as pre-packaged bankruptcies and quick auctions, and the increased role of hedge funds, have transformed chapter 11 since the 1990s, when companies such as discount retailer Bradlees spent years protected from creditors. "If anything, the worry now is some cases go too quickly," said Melissa Jacoby, a professor at the University of North Carolina School of Law. Last year there were 11 pre-packaged bankruptcies, the most ever, according to a database of public company filings since 1979 maintained by UCLA Law School professor Lynn LoPucki.

Is CFPB Subject to Trump Executive Orders? No Easy Answer

White House directives designed to curb regulations have created confusion over whether they apply to the Consumer Financial Protection Bureau, whose status as an independent agency is under attack by Republicans, the Wall Street Journal reported yesterday. A memo issued Jan. 20 — Inauguration Day — ordered “executive departments and agencies” to temporarily suspend filing new regulations and delay the implementation of pending rules to give President Donald Trump’s appointees the chance to study them. The White House has made clear that the order doesn’t apply to financial regulators that are classified as “independent agencies,” such as the Federal Reserve and the Securities and Exchange Commission. Independent agencies are defined as those established by Congress outside of the executive branch, where the president’s authority to dismiss the head of the agency is limited. Another executive order signed on Monday directs at least two existing regulations to be repealed for each new one introduced. Neither the White House nor the CFPB has clarified its position regarding whether the two memos apply to the agency, leaving the future uncertain for some major regulations affecting areas such as mortgage disclosure and servicing as well as prepaid cards.

 

In related news, Sens. Deb Fischer (R-Neb.), John Barrasso (R-Wyo.) and Ron Johnson (R-Wis.) introduced a bill on Jan. 11 that would replace the single director of the CFPB with a five-member bipartisan committee. While similar legislation was introduced in previous sessions of Congress, prospects for the bill are more favorable with both the House and Senate under Republican control, and President Trump's deregulatory agenda. Click here to view the full text of S. 105.

Analysis: Second Circuit Narrowly Interprets the Trust Indenture Act in Marblegate

The Second Circuit’s decision in Marblegate Asset Management v. Education Management Corp. provides some certainty in the world of out-of-court reorganizations, according to an analysis by ABI Resident Scholar Prof. Andrew B. Dawson. At stake in the decision was whether the Trust Indenture Act of 1939 would prohibit the debtor from engaging in a debt-exchange offer over the objection of a dissenting noteholder. The district court held that the TIA prohibited not only debt-exchange offers that would modify the core payment terms of the bond indenture, but also those that would diminish (or, in this case, eliminate) the bondholder’s practical ability to receive payment. The Second Circuit reversed, thus reaffirming the limited scope of the TIA and leaving dissenting bondholders with only their state law protections.


The Second Circuit in its Marblegate decision cited an article in the forthcoming edition of the ABI Law Review (see p. 32). To preview the article, please click here.

For more on the Marblegate case, be sure to read ABI Editor-at-Large Bill Rochelle's analysis.

Commentary: The End of Employees

Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry, according to a Wall Street Journal commentary today. The contractor model is so prevalent that Google parent Alphabet Inc., ranked by Fortune magazine as the best place to work for seven of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees. For companies, the biggest allure of replacing employees with contract workers is more control over costs. Contractors help businesses keep their full-time, in-house staffing lean and flexible enough to adapt to new ideas or changes in demand. For workers, the changes often lead to lower pay and make it surprisingly hard to answer the simple question of “Where do you work?” Some economists say the parallel workforce created by the rise of contracting is helping to fuel income inequality between people who do the same jobs. No one knows how many Americans work as contractors, because they don’t fit neatly into the job categories tracked by government agencies. Rough estimates by economists range from 3 to 14 percent of the nation’s workforce, or as many as 20 million people.

 

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