Commentary Questions Remain about Unwinding Failing Financial Giants

ABI Bankruptcy Brief | October 31, 2013

October 31, 2013

NEWS AND ANALYSIS

COMMENTARY: QUESTIONS REMAIN ABOUT UNWINDING FAILING FINANCIAL GIANTS

Much optimism has been expressed that the orderly liquidation authority established by the Dodd-Frank Act for large financial institutions will allow them to wind down effectively, but the Bankruptcy Code should not be ignored, as it is supposed to be the first line of defense for struggling companies, according to a commentary by Prof. Stephen Lubben in yesterday's New York Times DealBook blog. Indeed, under the Dodd-Frank Act, all the "too big to fail" entities are busy preparing resolution plans (otherwise known as living wills) that outline how they would be fair in a bankruptcy case. However, little has been done to address the shortcomings in the Code that were unable to handle American International Group in 2008, according to Lubben. Also, those living wills are supposed to present a credible resolution plan under the Bankruptcy Code. According to Lubben, the FDIC does not have a lot of in-house chapter 11 experience, which leaves open the question of how the regulator is determining that these plans represent a realistic bankruptcy approach. Read the full commentary.

Looking for more on potential reforms to chapter 11? You will not want to miss tomorrow's Chapter 11 Commission hearing tomorrow at 2:30 p.m. ET at the NCBJ annual conference. The hearing will look at corporate governance issues in bankruptcy. If you are attending NCBJ's Annual Conference, note that the hearing will take place in room A706. If you are not able to attend in person, you can watch the hearing via live webstream by going to http://commission.abi.org.

ANALYSIS: PENSION PINCH BUSTS CITY BUDGETS

Nationwide, pension costs are eating up more of city general funds, leaving less money to spend on day-to-day needs, such as garbage pickup or parks maintenance, the Wall Street Journal reported today. The median spending on pensions among the country's 250 largest cities rose to 10 percent of general budgets in 2012, up from 7.75 percent in 2007, according to data provided to the Wall Street Journal by Merritt Research Services LLC. A few cities weren't available by August 2013, when Merritt collected the information. In Springfield, Ill., annual payments to the public employee retirement system have nearly tripled over the past decade to $19.8 million. The city says it spent 20 percent of its operations budget on pensions in the 2012 fiscal year, one of the nation's highest rates. Read more. (Subscription required.)

SBA BACKS ROUGHLY $30 BILLION IN SMALL-BUSINESS LOANS FOR THIRD STRAIGHT YEAR

The U.S. Small Business Administration (SBA) supported around $30 billion in loans to small firms for the third consecutive year in fiscal year 2013, the agency announced on Tuesday, the Washington Post reported yesterday. Starting last October and running through the end of last month, the department signed off on federal guarantees backing $29.6 billion in small-business loans, down slightly from $30.25 billion last year and an all-time peak of $30.5 billion in 2011. The total number of loans, on the other hand, increased from 53,848 last year to 54,106 in 2013. SBA loans are made by banks, credit unions and other private lenders, but they carry a partial guarantee from the federal government. The idea is to encourage bankers to take on more small-business loans by allowing the government to shoulder some of the risk of default. The agency's relatively steady loan support over the past three years comes as private small-business lending has tapered off. In June 2012, for instance, banks had $588 billion in outstanding loans to small firms, down 3.1 percent from the end of 2011. By comparison, they had $1.9 trillion in big-business loans outstanding, up 12 percent from the end of the previous year. Read more.

PROFILE: LEON WEIDMAN USED LITTLE-KNOWN STATUTE TO BECOME THE SCOURGE OF WALL STREET

The architect of a recent legal crackdown on Wall Street's dubious mortgage practices was not the attorney general, a United States attorney or a rising star in the Justice Department, but rather Leon W. Weidman, an unassuming 69-year-old career prosecutor, according to the New York Times DealBook Blog. For much of his 43 years as a government lawyer, Weidman led a small group of federal prosecutors in Los Angeles. In the 1990s and 2000s, he and his team brought nearly 200 civil fraud lawsuits against mortgage crooks and small-business cheats, using an obscure federal law created in the aftermath of the savings-and-loan crisis a quarter century ago. Now the work of Weidman has leapt to a bigger stage: the government's campaign to punish Wall Street for the financial crisis. His pioneering use of the law -- the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or FIRREA -- underpinned the Justice Department's tentative $13 billion settlement with JPMorgan Chase. The U.S. attorney in Manhattan, Preet Bharara, has deployed the statute most often, filing civil fraud actions against Wells Fargo, BNY Mellon and Bank of America, among others. A jury found Bank of America liable in that case last week. The wave of cases has ignited a legal controversy, raising the question of whether federal prosecutors, in dusting off an old statute, are misapplying the law. So far, judges have blessed the government's tactics. Read more.

AT NCBJ'S 87TH ANNUAL CONFERENCE? BE SURE TO ATTEND ABI'S SESSIONS TOMORROW!

If you are attending the National Conference of Bankruptcy Judges 87th Annual Conference in Atlanta this week, be sure to tap into the following resources and programs:

Have you downloaded the official NCBJ Conference app for Apple iOS or the Google Android devices? Built by ABI, the app contains the conference schedule, materials, hotel map, speaker info, access to the conference Twitter feed and more. You can customize it to remind you when your favorite session is about to start.
To download the app for iOS devices from iTunes, please click here.

To download the app for Android devices from the Google Play store, please click here.

Also, ABI will be sponsoring a number of great programs on Nov. 1 at the conference:

-Topics for the ABI/NCBJ Roundtables tomorrow include: Single Asset Real Estate Cases, Streamlining the Process- National Chapter 13 Plan- Good or Bad? Part 1, What to Do after the Sale? Structured Dismissals, Liquidating Trusts and Chapter 7 Conversion, Chapter 7 & Hot Topics, Current Labor and Employment Issues in Bankruptcy Cases, Where the Work Is: Does the Restructuring Profession Need to Be Restructured?, Streamlining the Process- National Chapter 13 Plan- Good or Bad? Part II, Chapter 11 Professional Issues: Proper Disclosure and Retention and Addressing the New Rules of the Road on Compensation. The programs require pre-registration through the NCBJ.

-ABI luncheon tomorrow in the Imperial Ballroom from 12:45-2:30 p.m. ET featuring Prof. Jeffrey Rosensweig, global and economics forecaster and expert on global investing and business strategy.

-Hearing tomorrow from 2:30-4:30 p.m. ET of ABI's Commission to Study the Reform of Chapter 11. The hearing will take place in Room A706 and will focus on corporate governance issues in bankruptcy. Witnesses set to testify at the hearing include:

Dennis F. Dunne of Milbank, Tweed, Hadley & McCloy, LLP (New York) will testify about the role of committees in chapter 11.
William K. Snyder of Deloitte CRG (Dallas) will testify on the role of the chief restructuring officer (CRO) in chapter 11.
Brady C. Williamson of Godfrey & Kahn, SC (Madison, Wisc.) will testify about the use of fee examiners in corporate bankruptcy cases.
Mark A. Gittelman of PNC Bank (Philadelphia) will testify on structural changes in the court systems, including creating a national bankruptcy court venue for mega cases.
Prof. Anne Lawton of Michigan State University College of Law (East Lansing, Mich.) will testify about special accommodations for small and middle market cases.
W. Clarkson McDow, U.S. Trustee (ret.) Region 4 (Columbia, S.C.) will testify about the U.S. Trustee's role in chapter 11 cases.
For more, please visit http://commission.abi.org.

- Be sure to visit ABI's booth (#5) and C.A.R.E's booth (#6) to learn about new promotions, products and more!

RENEW YOUR ABI MEMBERSHIP BY DEC. 31 AND SAVE!

Beginning in January 2014, ABI will institute its first dues increase to the regular dues rate in six years. The $20 increase will ensure that ABI can continue to provide you with the latest and most effective tools available in insolvency information and education. You can lock in 2013 rates, and additional discounts, for up to three years by using a multi-year renewal option (save $75!). You can also save 10 percent on future dues by opting into the automated dues program. To renew your membership and save, please go to renew.abi.org.

NOW AVAILABLE FOR PURCHASE; ETHICS CLE AVAILABLE! "BANKRUPTCY IN DEPTH" VIDEO PREVIEWS UPCOMING SUPREME COURT BANKRUPTCY CASES

Available now for purchase from ABI's eLearning Center (http://cle.abi.org) is a new "Bankruptcy In Depth" video featuring ABI Resident Scholar Kara Bruce and Eric Brunstad of Dechert LLP (Hartford, Conn.) previewing the bankruptcy cases that the Supreme Court will consider during its 2013 term. Brunstad, who has argued many cases before the Court and is an expert in bankruptcy appellate practice, discusses in depth Law v. Siegel, which questions whether the court may use its general equitable authority under §105 of the Bankruptcy Code to surcharge a debtor's exempt assets, and Executive Benefits Insurance Agency v. Arkison (In re Bellingham), which will address the bankruptcy court's authority to adjudicate Article III matters. He also provides a candid view of what it is like to argue a case before the Court and an in-depth analysis of the issues involved with the upcoming cases. Available for the member price of $75, ABI will also seek 1.25 hours of ethics CLE credit in 60-minute-hour states and 1.5 hours of credit in 50-minute-hour states for this program. This online CLE program is presumptively approved in CA, DE, FL, GA, HI, IL, NV, NJ, NY (Approved Jurisdiction Policy), RI and SC. Credit hours granted are subject to approval from each state, which has not been determined. To purchase the new "Bankruptcy In Depth" video, please click here.

NEXT WEDNESDAY! RISKY TIMES FOR SECURED LENDERS AND SERVICERS TO BE FOCUS OF FIRST ABI WORKSHOP PROGRAM; ATTEND IN PERSON OR VIA LIVE WEBSTREAM

You will not want to miss the abiWorkshops series' inaugural program, "Risky Times for Secured Lenders and Servicers." The program is cosponsored by TMA (Chesapeake), IWIRC (D.C./Greater Maryland) and RMA (Potomac), and will be held on Nov. 6 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 6 program include:

- Living with the New CFPB Mortgage Servicing Rules
- Business Lending: Navigating What Lies Ahead
- Business Lending: Recent Legal Developments

For more information or to register for the "Risky Times for Secured Lenders and Servicers" abiWorkshop on Nov. 6, please click here.

EXPERTS TO EXAMINE STUDENT LENDING AND BANKRUPTCY AT ABI WORKSHOP PROGRAM ON NOV. 15

Experts will tackle the hot topic of student lending issues in bankruptcy on the abiWorkshops series' new program, "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" The program will be held on Nov. 15 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 15 program include:

- Student Lending Today: Who Borrows, How Much, Delinquency & Default Trends
- Repayment Options: Income Based Repayment and New Lender/Servicer Programs
- Litigation under Sect. 523(a)(8): What Proofs Are Needed? Evidence Demonstration

For more information or to register for the "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" abiWorkshop on Nov. 15, please click here.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW ABILIVE WEBINAR LOOKS AT HOW TO HIRE THE RIGHT FINANCIAL ADVISORS

ABI's Financial Advisors & Investment Banking Committee is proud to present the next abiLIVE webinar, "How to Hire the Right Financial Advisors," on Dec. 11 from 1-2:15 p.m. ET. The program will provide attendees with an overview and basic understanding of the different types of financial advisors that may be relevant for in- and out-of-court cases. Topics include:

- The different types of financial advisors available;
- The benefits and limitations for each category of advisor; and
- How to select the right advisor for the job.

Speakers on the webinar include:

-Daniel F. Dooley of MorrisAnderson (Chicago)

-Gregory S. Hays of Hays Financial Consulting LLC (Atlanta)

-Ivan Lehon of Ernst & Young (New York)

-Allen Soong of Deloitte CRG (Los Angeles)

• Teri Stratton of Piper Jaffray & Co. (El Segundo, Calif.)

Registration is $75 for ABI members/$175 for non-members. Have a number of colleagues that would like to participate? Take advantage of group pricing for ABI members: register 5 or more and the registration cost drops to $60 per person!

Click here for more information and to register.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.

NEW CASE SUMMARY ON VOLO: BERSHADSKIY V. RODEO REALTY INC. (IN RE BERSHADSKIY; 9TH CIR.)

Summarized by David Hercher of Miller Nash LLP

The Ninth Circuit BAP ruled that if a debtor sells real property after canceling a listing agreement and without disclosing the sale to the broker, the debtor has committed fraud, rendering the debt to the broker for the unpaid commission nondischargeable under § 523(a)(2).

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: GIVE SMALL BANKS A BREAK ON CFPB MORTGAGE RULES

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent post advocated that the CFPB should give community banks relief from the new mortgage servicing rules that are taking effect on Jan. 10.

The CFPB's new mortgage servicing rules will be the focus of the Nov. 6 abiWorkshop. For more information or to register, please click here.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Can litigant consent enable the bankruptcy court to enter final judgment in a matter which, after Stern, falls outside the court's constitutional authority?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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