ABI Task Force Finds High Rate of Individual Chapter 11 Filings
Individuals account for between a quarter and a third of all chapter 11 bankruptcy cases filed, according to a preliminary report of the American Bankruptcy Institute's Task Force on Individual Chapter 11, BloombergBNA reported yesterday. Individual Chapter 11 filings are in a "no man's land" and are "incredibly different from business chapter 11s," said C.R. "Chip" Bowles, Jr., of Bingham Greenebaum Doll LLP (Louisville, Ky.) at a panel discussing the preliminary report presented at the ABI's Annual Spring Meeting (ASM) in Washington, D.C. Bowles is a contributor to the report. One concern for researchers was whether individuals could be pushed into chapter 11 and forced to make payments out of future income. The results of the study, however, suggest that this problem is more "theoretical than actual" because the researchers didn't find a single case filed in either 2010 or 2013 in which the debtor was involuntarily pushed into chapter 11 and in which a plan was ultimately confirmed. The report is still evolving and will be expanded and edited during the summer, with the final report to be released later this year, according to Prof. Margaret Howard, reporter of the Task Force and the Law Alumni Association Professor of Law at Washington and Lee University School of Law (Lexington, Va.).
Click here to view the materials from the ASM session and a preliminary copy of the report.
ASM Panel: Mediation Plays Increasing Role in Bankruptcy Cases
Mediation plays an increasing role in both consumer and business bankruptcy cases, and it is important that parties are prepared for mediation, according to panelists speaking April 15 at ABI's Annual Spring Meeting in Washington, D.C., Bloomberg BNA reported yesterday. Virtually "any type of dispute can be mediated," said Eric D. Madden of Reid Collins & Tsai LLP in Dallas. Some examples include avoidance actions, including preference actions, disputes regarding claims, disputes over assets, valuation disputes, priority of liens, confirmation issues and post-confirmation litigation, he said. C. Edward Dobbs of Parker, Hudson, Rainer & Dobbs LLP in Atlanta cautioned against mediating too early, however. Starting too early can inhibit the discovery process, he said. "Whenever a government agency is involved in the mediation, it changes things," said Judge Gregg W. Zive of the U.S. Bankruptcy Court for the District of Nevada in Reno. Political factors typically take precedent, according to Zive. "Government agencies have different agendas than private parties," Zive said. "Make sure whoever is needed or who has the authority to settle the case is there at the mediation" in case an agreement is reached, he said.
To view ABI's Model Rules for Mediation, please click below:
Commentary: There Are No Unencumbered Assets in Texas
Six years ago, in an otherwise unremarkable opinion, a court in Texas undermined one of the fundamental concepts embedded in the statute of frauds and deprived unsecured creditors of millions of dollars in value that would otherwise have been available to them, according to a commentary in yesterday's Wall Street Journal. Oil and gas companies are currently failing at an unprecedented rate, and now the creditor who can get at the oil and gas company's real property interests holds the keys to the debtor's estate. If the real property interests are subject to a properly recorded mortgage, unsecured creditors are, in most instances, out of luck, according to the commentary. Any contract for the transfer of an interest in real property, such as oil and gas interests, is subject to the statute of frauds. The statute of frauds requires a contract for the sale or transfer of real property to contain "sufficient" information to identify the property being conveyed with "reasonable certainty." In most states, that means a granular description -- think metes and bounds. In Texas, in the wake of a 2010 ruling in the bankruptcy of Cornerstone E&P Co., a blanket lien on "all real property interests now owned or hereafter acquired" is deemed sufficiently descriptive to satisfy the statute of frauds.
Wall Street Bonus Pay Restricted Under U.S. Regulators' Proposal
Wall Street executives would have to wait at least four years to collect most of their bonus pay and could be forced to return money if their companies lose big under rules being proposed to install one of the last major planks of the Dodd-Frank Act, Bloomberg News reported today. Financial companies with more than $250 billion in assets would face the toughest restrictions on pay for senior executives and other employees in a position to have major impact on the firm's bottom line, according to the long-delayed incentive compensation measures released by the National Credit Union Administration (NCUA). NCUA, one of the six agencies that must adopt the rules, is meeting today for a vote that would release them for public comment. The other regulators, including the Federal Reserve and Securities and Exchange Commission, are expected to follow. The proposal would allow companies to take back bonuses -- even those already vested -- if the employee took inappropriate risks, drew an enforcement action or exceeded a firm's risk limits and caused a loss. Clawbacks of bonuses could happen for as long as seven years, including for those who have left the company, according to the proposal, which represents six years of combined work from regulators to interpret one of the core provisions of the 2010 Dodd-Frank Act.
Commentary: Are "Big Banks" the Problem?
Companies fret about "silos" in which employees obsess about the wrong thing and miss opportunities because they don't see a bigger picture, according to a Wall Street Journal commentary yesterday. The 2008 crisis did not begin in a handful of too-big-to-fail banks, but in incentives cast far and wide among home buyers, mortgage brokers, lenders and others to underwrite tax-advantaged, one-way bets on home prices. Too big to fail was implicated in only one way, according to the commentary: Fannie Mae and Freddie Mac were too big to fail in the eyes of their own lenders, including the Chinese government, which did no due diligence on the U.S. housing boom because they expected Washington to bail them out. Only later did the biggest institutions like Citibank and Merrill Lynch become threatened with liquidity panics and regulatory insolvency. The reason: Market uncertainty over how regulators would treat their illiquid holdings of exotic Triple-A mortgage derivatives that, as history would later show, were well insulated from the uptick in subprime defaults. Big banks aren't automatically bad or badly managed because they are big, but it's hard to believe big banks would exist without an explicit and implicit government safety net underneath them. At the moment, regulators are hand-waving over the inadequacy of the "living wills" that were supposed to make giant banks easier to wind up if they stumble -- never mind that living wills are irrelevant to the circumstances that actually cause the solvency of giant banks to be questioned and irrelevant to the (inevitable) government decision to support them. The Richmond Fed's "bailout barometer" shows that, since the 2008 crisis, 61 percent of all liabilities in the U.S. financial system are now implicitly or explicitly guaranteed by government, up from 45 percent in 1999.
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New on ABI's Bankruptcy Blog Exchange: Nortel Bankruptcy Sets a Dangerous Precedent For the Future of Lending
Until recently, a lender taking a promise from a subsidiary of a business could rest assured that its only other competition to the subsidiary's assets would be the other creditors, according to a recent blog post. The Nortel bankruptcy case, however, threatens to overturn this accepted wisdom and bring uncertainty to financing of large enterprises.
To read more on this blog and all others on the ABI Blog Exchange, please click here.