Chapter II Introduction

• Jurisdiction: United States

II. Introduction

Commission to Explore Overhauling Chapter 11¹

Contributing Editor:
Robert J. Keach
Bernstein Shur; Portland, Maine

Also Written by:
Albert Togut
Togut, Segal & Segal LLP; New York

It has been more than 30 years since the enactment of the Bankruptcy Code, and there is a growing view that the current law needs an overhaul. This need was identified at "Chapter 11 at the Crossroads: Does Reorganization Need Reform?," a 2009 ABI-sponsored event billed as a "symposium on the past, present and future of U.S. corporate restructuring." Out of the symposium came a consensus that there is a need to reform chapter 11, and that it needs to be reformed now.²

Agreeing on the specifics of reform is the next, more difficult step. ABI President Geoff Berman (Development Specialists Inc.; Los Angeles) has addressed the formation of a "commission" to study the current law and to recommend changes—a "Chapter 11 at the Crossroads: Part II," if you will. In his inaugural address during the 2011 Annual Spring Meeting, he said:

Today's typical case is expedited and does not resemble a classic reorganization: one in which a distressed company can find protection in the safe harbor of Chapter 11, dispose of unprofitable parts of the business, stabilize what remains, operate for a short time to see that the core business can be profitable, propose a plan based upon the smaller, profitable core business, restructure its balance sheet pursuant to a Chapter 11 plan, and emerge as a healthy, albeit smaller, business enterprise. Instead of that classic Chapter 11 model, today we see quick sales to new owners driven by creditor interests or an outright liquidation.

That current law needs updating was recognized in the opening panel of the 2009 symposium, which consisted of many of the "founding fathers" of the 1978 Code. The group revealed that the 1978 Code, at passage, was expected to have a "shelf life" of, at best, 40 or so years. As panelist Rich Levin (Cravath, Swaine & Moore LLP; New York) said:

The politics are very different, but there's also something else that's very different. And here again, I'll ask Bob [Feidler] if he won't agree with me that at the time in '78, we said we need to revise the bankruptcy laws because the entire underlying credit economy in the business world had changed dramatically in the 40 years since the 1938 Chandler Act. At the same time, we said we knew that there would need to be a bankruptcy reform act of 2018, 40 years hence, because the entire credit economy and business world would change again. Now, it's changed dramatically in 30 years, and I think we're at that point, and leave aside the political compromise, which will have to be made to get anything through Congress; the point is that the system needs to be rethought. It's done very well keeping up with the dramatic changes in the underlying business and credit economy, but it's stretched dramatically, and lawyers and business people have

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