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ABI Endowment to Fund Study of the Prevalence of Substantive Consolidation in Large Public Company Bankruptcies

Contact: John Hartgen 
             (703) 739-0800
             jhartgen@abiworld.org

ABI ENDOWMENT TO FUND STUDY OF THE PREVALENCE OF SUBSTANTIVE CONSOLIDATION IN LARGE PUBLIC COMPANY BANKRUPTCIES

May 23, 2006, Alexandria, Va. — The American Bankruptcy Institute Endowment Fund has awarded a $22,000 grant to Prof. William H. Widen of the University of Miami School of Law to study the prevalence of substantive consolidation in large public company bankruptcy proceedings. Substantive consolidation is a judicially created remedy where the assets and liabilities of two or more entities are pooled, and the pooled assets are aggregated and used to satisfy the claims of creditors of all the consolidated entities.

Prof. Widen’s motivation for the study is to find a correct understanding of substantive consolidation and its uses to aid courts as they consider the scope and limits of this doctrine. He has so far found that case law rhetoric, which suggests that substantive consolidation should rarely be used, is at odds with actual practice, which finds use of the doctrine to be a common and essential tool of case administration.

'I hope this research will provide a better understanding of the conditions under which the corporate form is respected and ignored in practice,” Prof. Widen said. “This may allow for a more precise formulation of the contours of substantive consolidation doctrine which, though extremely important for business reorganizations, remains unsettled at this time.'

The study will expand and complete a preliminary study in which Prof. Widen found that 11 of the top 21 bankruptcy proceedings (measured by asset size) from 2000-2004 used the substantive consolidation doctrine as part of the reorganization. Prof. Widen and his research staff will collect and analyze primary-source materials for additional cases from 2000-2004 to arrive at a more definite frequency number for large public company bankruptcies. Its goal is to show that proper formulation of the doctrine is essential for the efficient reorganization of corporate groups.

The ABI Endowment Fund was created in 1989 to provide a secure financial base for the Institute and to provide resources for insolvency research and education. Projects eligible for Endowment funding include research by individuals or entities relating to bankruptcy or insolvency; surveys or other analytical investigation; the education of judges, court personnel, other governmental personnel and the general public; scholarships or other educational grants; support for the Robert M. Zinman Resident Scholar; and support for both the Chief Judge Conrad B. Duberstein National Bankruptcy Memorial Moot Court Competition and ABI’s Corporate Restructuring Competition. Since 1998, the Fund has awarded nearly $500,000 in grants.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 11,500 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.