The American Bankruptcy Institute Commission to Study the Reform of Chapter 11 today released its long-awaited, much-anticipated Final Report and Recommendations. Over the next several weeks, we at the Weil Bankruptcy Blog will provide our faithful readers with summaries of the most interesting and important issues addressed in the Report—our goal is to enable you to discuss these topics at holiday cocktail parties and elsewhere without having to miss out on your beauty sleep by reading all 400 or so pages yourself. Think of it as our early holiday gift to you.
First, a bit of background. The ABI Commission was established in recognition of the “general consensus among restructuring professionals” that the time has come to evaluate U.S. business reorganization laws as a result of numerous changes that have occurred since the Bankruptcy Code was enacted in 1978. Some of the changes cited by the ABI Commission include:
- companies having more complex corporate structures with more leverage, and, in particular, secured debt;
- companies’ asset values being driven less by hard assets and more by services, contracts, intellectual property, and other intangible assets;
- the greater prevalence of multinational operations; and
- the changed composition of creditor classes in light of claims trading and derivative products.
The ABI Commission was guided by its mission statement:
In light of the expansion of the use of secured credit, the growth of distressed-debt markets and other externalities that have affected the effectiveness of the current Bankruptcy Code, the Commission will study and propose reforms to Chapter 11 and related statutory provisions that will better balance the goals of effectuating the effective reorganization of business debtors – with the attendant preservation and expansion of jobs – and the maximization and realization of asset values for all creditors and stakeholders.
The Commissioners, composed of some of the most prominent insolvency and restructuring professionals in the United States, undertook a three-year process that involved numerous meetings, the establishment of advisory committees, public field hearings, and substantial deliberations. According to the ABI Commission, no topics were off-limits, and a substantial reevaluation of the Bankruptcy Code was not only permitted, but encouraged. After the various advisory committees submitted comprehensive proposals based on two years of research, analysis, and discussion, the ABI Commission prepared what is, in effect, a magnum opus directed to the industry and to Congress in support of meaningful reform of the current Bankruptcy Code. Notably, in proposing reforms to chapter 11 of the Bankruptcy Code, the ABI Commission necessarily included substantial analysis of, and proposals for, the other chapters of the Bankruptcy Code, insofar as they bear a material effect on the chapter 11 process. Based on our initial review, we believe the following topics will be of most interest to our readers:
- Oversight of the Case (trustee, examiner, committees, professionals and fiduciaries) (IV.A, VI.A)
- Financing (IV.B, IV.C.1)
- Claims and Claims Trading (IV.D, VI.D)
- Safe Harbors (IV.E)
- 363 Sales and Related Issues (V.B, VI.B)
- Executory Contracts (V.A)
- Plan Confirmation and Exit Strategies (VI.E, F, G)
- Venue and Bankruptcy Courts’ Authority (IX.A, IX.B)
- Systemically Important Financial Institutions and Cross-Border Cases (IX.D, E)
- Valuation Issues and Cramdown Interest Rates (passim, esp. V.F, VI.C)
- Avoidance Actions and Other Litigation Issues (V.C, G, H)
- Labor and Benefits (V.D, V.E.3, 4)
- Small and Medium Size Enterprise Issues (VII)