Contact: John Hartgen
size='3'>
(703) 739-0800
size='3'>
href='mailto:jhartgen@abiworld.org'>
color='#0000ff' size='3'>jhartgen@abiworld.org
EXPERTS
SUGGEST ESTABLISHING NEW CHAPTER 10 BANKRUPTCY FOR COMPANIES THAT ARE
“TOO BIG TO FAIL”
size='3'>February 19, 2009, Alexandria, Va.
— As an alternative to a chapter 11 bankruptcy or government
bailout, two bankruptcy experts have suggested a new “chapter
10” bankruptcy to be established within the Bankruptcy Code for
companies that are viewed as “too big to fail.” In response
to financial distress of large companies, primarily the “Big
Three” automakers General Motors, Chrysler and Ford, authors
Prof. George W.
Kuney of the University of Tennessee College
of Law (Knoxville, Tenn.) and
size='3'>Michael St. James of St. James Law PC
(San Francisco) have laid out their idea in the article “A
Proposal for Chapter 10: Reorganization for ‘Too Big to
Fail’ Companies,” to be published in the March 2009 issue of
the American Bankruptcy
Institute Journal.
Kuney and St. James found that
a chapter 11 filing for companies such as the Big Three automakers
“would inevitably impose great harm on vendors and other
interrelated businesses.” The authors said that the primary
problem with the current chapter 11 process was that a filing by a
“too big to fail” (TBTF) company was that it could result in
a cascade of business failures and layoffs for other nondebtor
companies. The cascade of business failures would be due in large part
to the “ordinary-course-of-business trade debts,” such as
vendor payments and payroll expenses, that are put on hold for months or
years while a company negotiates a reorganization plan. Vendors
dependent on those payments, such as auto suppliers, are also likely to
fail as a result of a TBTF company bankruptcy.
To remedy this potential
problem of cascading business failures, the authors’ proposal for
a new chapter 10 bankruptcy centers on excluding
ordinary-course-of-business trade debts from the current chapter 11
process. “This one modification will free the bankruptcy process
for a TBTF company from administering multitudes of granular claims that
are unrelated to its core financial problems,” according to Kuney
and St. James. “Since payables would not be disrupted by the
bankruptcy filing, the bankruptcy of the TBTF company would not
inevitably and automatically lead to cascading business
failures.”
While providing the important
exclusion for ordinary-course-of-business trade debts, the authors said
that the chapter 10 process would closely resemble the chapter 11 filing
process. The chapter 10 proposal would adopt the processes established
by the current chapter 11 structure with respect to the restructuring of
ongoing contractual relationships, modification or rejection of
collective-bargaining agreements, restructuring of secured debt and the
restructuring of rights and powers of the various financial stakeholders
and constituencies in the bankruptcy case.
To obtain a copy of “A
Proposal for Chapter 10: Reorganization for ‘Too Big to
Fail’ Companies,” please contact John Hartgen at
703-739-0800 or via email at jhartgen@abiworld.org. In addition, make
sure to visit ABI’s Bankruptcy Town Hall Web site to read expert
opinions and view several quick polls about whether the U.S. automakers
should file for bankruptcy or if the federal government should provide
further financial assistance to the struggling companies. To view the
ABI Bankruptcy Town Hall site, please visit
href='http://townhall.abiworld.org/'>
size='3'>http://townhall.abiworld.org/.
###
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
11,700 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.