In the general perception, financial institutions’ immense repo and derivatives portfolios are friends and foes alike: friends, because they provide for levels of market liquidity that would be unimaginable without them. Foes, because both types of transactions are somehow regarded as being unstable and volatile in their nature, potentially exacerbating and accelerating crisis situations. This tension is also reflected in the treatment of repos and derivatives in the event of a corporate crisis. Insolvency law and relevant regulation seem to support and protect repo and derivatives transactions, while at the same time imposing limits on them, trying to balance liquidity arguments with those relating to stability. This paper concludes that regulation is better placed than insolvency law to address systemic stability concerns, whereas relevant insolvency rules guarantee high levels of liquidity while they are ineffective in terms of stability. The paper will concentrate on EU and US law, complemented by international benchmarks. It expands on certain aspects first developed my earlier paper on insolvency safe harbours.
{"title":"Repo and Derivatives Portfolios Between Insolvency Law and Regulation","authors":"P. Paech","doi":"10.2139/ssrn.2984199","DOIUrl":"https://doi.org/10.2139/ssrn.2984199","url":null,"abstract":"In the general perception, financial institutions’ immense repo and derivatives portfolios are friends and foes alike: friends, because they provide for levels of market liquidity that would be unimaginable without them. Foes, because both types of transactions are somehow regarded as being unstable and volatile in their nature, potentially exacerbating and accelerating crisis situations. This tension is also reflected in the treatment of repos and derivatives in the event of a corporate crisis. Insolvency law and relevant regulation seem to support and protect repo and derivatives transactions, while at the same time imposing limits on them, trying to balance liquidity arguments with those relating to stability. This paper concludes that regulation is better placed than insolvency law to address systemic stability concerns, whereas relevant insolvency rules guarantee high levels of liquidity while they are ineffective in terms of stability. The paper will concentrate on EU and US law, complemented by international benchmarks. It expands on certain aspects first developed my earlier paper on insolvency safe harbours.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"95 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86743269","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Brazil’s new bankruptcy act (Law 11.101/2005) is about to complete 12 years the summer of 2017. The law it superseded was enacted in 1945 and was widely considered not to present adequate tools for reorganizing a distressed yet viable firm. Its provisions about the liquidation of a distressed and non-viable company were also considered non-efficient. The new law, enacted in 2005, has received wide praise as a modern, state of art tool, one that had all it took to allow distressed companies to reorganize successfully striving yet viable businesses. It was inspired by the U.S Bankruptcy Code and by Germany’s InsolvenzOrdnung. The new law expressly states that its goals are to allow the reorganization of distressed firms as going concerns, thus preserving jobs, production, assets’ value and maximizing creditor’s recovery. I argue in this essay that the goals set by the Brazilian bankruptcy have not been achieved. In addition to my perception as a bankruptcy practitioner, there is a growing consensus among practitioners, scholars, judges and even politicians. I believe that in the topic analyzed conventional wisdom and empirical analysis converge and end up in the same conclusion: the Bankruptcy Act has failed to achieve its goals. I demonstrate that and point some of the reasons why that has occurred. I conclude that there are several probable concurrent causes to companies not reorganizing successfully, noticeably that: (i) Debtor’s failures to present consistent and convincing plans in due time (60 days), helped by creditor’s tolerance to such delays, lead to statutory terms not being met. The possibility that a missed deadline may lead to liquidation is not a convincing threat; (ii) Creditors, with rare exceptions, do not have the information whether or not reorganization is viable and do not seem to care. Rather, they seem to consider that their credit is ‘already sunk’, so whatever comes out of reorganization is considered a ‘plus’ and they will tolerate all sorts of missed deadlines; (iii) Companies that file for reorganizing bankruptcy are heavily indebted and, with few exceptions, have been producing constant operational losses long before filing for reorganization; as a result, the ‘point of no salvage’ has been long crossed and there is no real possibility of transforming the struggling business into a viable one; (iv) Minutes of creditors’ meeting do not show any argument about the efficiency of the turn-around measures and feasibility of plan in general, rather the emphasis is on discounts and payment dates. Not surprisingly, plans with very little substance and consistency are approved by creditors; (v) In Brazil, unlike the United States, there is no correlation between a longer confirmation span for the plan and a higher success rate for the reorganization. Longer confirmation periods are only the result of debtor not meeting deadlines; (vi) Brazilian companies usually file late for reorganization, when its debt is overwhelming and re
{"title":"An Analysis of Reorganizing Bankruptcies in Brazil: Assessing and Understanding Failure or Success.","authors":"O. S. Silva Neto","doi":"10.2139/ssrn.3095529","DOIUrl":"https://doi.org/10.2139/ssrn.3095529","url":null,"abstract":"Brazil’s new bankruptcy act (Law 11.101/2005) is about to complete 12 years the summer of 2017. The law it superseded was enacted in 1945 and was widely considered not to present adequate tools for reorganizing a distressed yet viable firm. Its provisions about the liquidation of a distressed and non-viable company were also considered non-efficient. The new law, enacted in 2005, has received wide praise as a modern, state of art tool, one that had all it took to allow distressed companies to reorganize successfully striving yet viable businesses. It was inspired by the U.S Bankruptcy Code and by Germany’s InsolvenzOrdnung. The new law expressly states that its goals are to allow the reorganization of distressed firms as going concerns, thus preserving jobs, production, assets’ value and maximizing creditor’s recovery. I argue in this essay that the goals set by the Brazilian bankruptcy have not been achieved. In addition to my perception as a bankruptcy practitioner, there is a growing consensus among practitioners, scholars, judges and even politicians. I believe that in the topic analyzed conventional wisdom and empirical analysis converge and end up in the same conclusion: the Bankruptcy Act has failed to achieve its goals. I demonstrate that and point some of the reasons why that has occurred. I conclude that there are several probable concurrent causes to companies not reorganizing successfully, noticeably that: (i) Debtor’s failures to present consistent and convincing plans in due time (60 days), helped by creditor’s tolerance to such delays, lead to statutory terms not being met. The possibility that a missed deadline may lead to liquidation is not a convincing threat; (ii) Creditors, with rare exceptions, do not have the information whether or not reorganization is viable and do not seem to care. Rather, they seem to consider that their credit is ‘already sunk’, so whatever comes out of reorganization is considered a ‘plus’ and they will tolerate all sorts of missed deadlines; (iii) Companies that file for reorganizing bankruptcy are heavily indebted and, with few exceptions, have been producing constant operational losses long before filing for reorganization; as a result, the ‘point of no salvage’ has been long crossed and there is no real possibility of transforming the struggling business into a viable one; (iv) Minutes of creditors’ meeting do not show any argument about the efficiency of the turn-around measures and feasibility of plan in general, rather the emphasis is on discounts and payment dates. Not surprisingly, plans with very little substance and consistency are approved by creditors; (v) In Brazil, unlike the United States, there is no correlation between a longer confirmation span for the plan and a higher success rate for the reorganization. Longer confirmation periods are only the result of debtor not meeting deadlines; (vi) Brazilian companies usually file late for reorganization, when its debt is overwhelming and re","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87812211","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Subsidiary legal entities can be used to create a path around bankruptcy's automatic stay, giving a secured creditor a free right to withdraw collateral. In some cases, core assets of the firm are made separable from each other. To fully understand the desirability of subsidiaries as a path around the stay, I take a step backward and ask a fundamental question that has not been addressed formally: why do we need a mandatory stay of secured creditors in the first place? The model generates conditions under which a stay of secured creditors can be valuable. Three conditions are necessary: a) the collateral must be firm-specific, b) debt contracts are sequential and incomplete, and c) bargaining at bankruptcy is imperfect. Under these conditions, a debtor may grant withdrawal rights even when they are less efficient than a stay. I discuss ways that a stay might be made applicable to subsidiary creditors in a way that is targeted at the inefficiencies the model identifies.
{"title":"On the Mandatory Stay of Secured Creditors in Bankruptcy","authors":"Kenneth M. Ayotte","doi":"10.2139/ssrn.3060748","DOIUrl":"https://doi.org/10.2139/ssrn.3060748","url":null,"abstract":"Subsidiary legal entities can be used to create a path around bankruptcy's automatic stay, giving a secured creditor a free right to withdraw collateral. In some cases, core assets of the firm are made separable from each other. To fully understand the desirability of subsidiaries as a path around the stay, I take a step backward and ask a fundamental question that has not been addressed formally: why do we need a mandatory stay of secured creditors in the first place? The model generates conditions under which a stay of secured creditors can be valuable. Three conditions are necessary: a) the collateral must be firm-specific, b) debt contracts are sequential and incomplete, and c) bargaining at bankruptcy is imperfect. Under these conditions, a debtor may grant withdrawal rights even when they are less efficient than a stay. I discuss ways that a stay might be made applicable to subsidiary creditors in a way that is targeted at the inefficiencies the model identifies.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"131 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73952353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
W. Beaver, Stefano Cascino, Maria Correia, M. McNichols
We examine bankruptcy within business groups. Groups have incentives to support financially distressed subsidiaries, as the bankruptcy of a subsidiary may impose severe costs on the group as a whole. This is in part because, in several countries, bankruptcy courts often “pierce the corporate veil” and hold groups liable for their distressed subsidiaries’ obligations as if they were their own. Using a large cross-country sample of group-affiliated firms, we show that, by reallocating resources within the corporate structure, business groups actively manage intra-group credit risk to prevent costly within-group insolvencies. Moreover, we document that recent regulatory changes in the approval and disclosure of related party transactions are costly for business groups in that they constrain their ability to shield their subsidiaries from credit-risk shocks. Our study informs the current regulatory debate on related party transactions by highlighting an important cost of anti-self-dealing regulation.
{"title":"Bankruptcy in Groups","authors":"W. Beaver, Stefano Cascino, Maria Correia, M. McNichols","doi":"10.2139/SSRN.2646916","DOIUrl":"https://doi.org/10.2139/SSRN.2646916","url":null,"abstract":"We examine bankruptcy within business groups. Groups have incentives to support financially distressed subsidiaries, as the bankruptcy of a subsidiary may impose severe costs on the group as a whole. This is in part because, in several countries, bankruptcy courts often “pierce the corporate veil” and hold groups liable for their distressed subsidiaries’ obligations as if they were their own. Using a large cross-country sample of group-affiliated firms, we show that, by reallocating resources within the corporate structure, business groups actively manage intra-group credit risk to prevent costly within-group insolvencies. Moreover, we document that recent regulatory changes in the approval and disclosure of related party transactions are costly for business groups in that they constrain their ability to shield their subsidiaries from credit-risk shocks. Our study informs the current regulatory debate on related party transactions by highlighting an important cost of anti-self-dealing regulation.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"16 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87245146","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Federal Reserve Bank of Minneapolis issued a proposed plan in November to attempt to solve the problem of too-big-to-fail banks. These are Prof Schwarcz's comments on that proposal.
明尼阿波利斯联邦储备银行(Federal Reserve Bank of Minneapolis)去年11月发布了一项拟议计划，试图解决“大到不能倒”的银行问题。以下是施瓦茨教授对该提议的评论。
{"title":"Comments on Federal Reserve's 'Minneapolis Plan'","authors":"S. Schwarcz","doi":"10.2139/SSRN.2883143","DOIUrl":"https://doi.org/10.2139/SSRN.2883143","url":null,"abstract":"The Federal Reserve Bank of Minneapolis issued a proposed plan in November to attempt to solve the problem of too-big-to-fail banks. These are Prof Schwarcz's comments on that proposal.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"29 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76921214","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Most insolvency jurisdictions provide several mechanisms to reverse transactions entered into by a debtor prior to the commencement of the bankruptcy procedure. These mechanisms, generally known as claw-back actions or avoidance provisions, may fulfill several economic goals. First, they act as an ex post alignment of incentives between factually insolvent debtors and their creditors, since the latter become the residual claimants of an insolvent firm but they do not have any control over the debtor´s assets while the company is not yet subject to a bankruptcy procedure. Second, these devices may prevent the race to the debtor’s assets when the insolvency threatens. Therefore, the existence of avoidance actions may reduce, at an early stage, the ‘common pool’ problem that bankruptcy law seeks to solve. Third, avoiding powers can be helpful to prevent the problem of overinvestment faced by a debtor willing to gamble the firm´s assets when it is in financial trouble. Fourth, the existence of avoidance actions may also protect the interests of both the debtor and its creditors as a whole when the former is facing financial trouble and some market participants want to take advantages of this situation. Fifth, the avoidance of transaction prevents opportunistic behaviors by a debtor in financial trouble, since it may have incentives to siphon or dilute assets in several ways. Finally, the avoidance of pre-bankruptcy transactions can also be helpful for the early detection of financially distressed debtors, and therefore it may encourage managers to take corrective actions in a timely manner. As a result of these goals, the existence of avoidance powers seems to be socially desirable, since it helps maximize the value of the firm. However, the use – and even existence – of avoidance actions is not costless. On the one hand, it implies litigation costs. On the other hand, it can also harm legal certainty, since the use of avoiding powers implies to reverse perfectly valid transaction entered into by two parties even in the absence of bad faith. Therefore, insolvency legislators should carefully deal with these costs and benefits generally associated with avoidance provisions in order to assure the economic desirability of avoidance powers. On the basis of this exercise, this paper analyze, from a comparative and functional approach, the optimal way to design claw-back actions across jurisdictions.
{"title":"The Avoidance of Pre-Bankruptcy Transactions: An Economic and Comparative Approach","authors":"Aurelio Gurrea-Martínez","doi":"10.2139/ssrn.2845101","DOIUrl":"https://doi.org/10.2139/ssrn.2845101","url":null,"abstract":"Most insolvency jurisdictions provide several mechanisms to reverse transactions entered into by a debtor prior to the commencement of the bankruptcy procedure. These mechanisms, generally known as claw-back actions or avoidance provisions, may fulfill several economic goals. First, they act as an ex post alignment of incentives between factually insolvent debtors and their creditors, since the latter become the residual claimants of an insolvent firm but they do not have any control over the debtor´s assets while the company is not yet subject to a bankruptcy procedure. Second, these devices may prevent the race to the debtor’s assets when the insolvency threatens. Therefore, the existence of avoidance actions may reduce, at an early stage, the ‘common pool’ problem that bankruptcy law seeks to solve. Third, avoiding powers can be helpful to prevent the problem of overinvestment faced by a debtor willing to gamble the firm´s assets when it is in financial trouble. Fourth, the existence of avoidance actions may also protect the interests of both the debtor and its creditors as a whole when the former is facing financial trouble and some market participants want to take advantages of this situation. Fifth, the avoidance of transaction prevents opportunistic behaviors by a debtor in financial trouble, since it may have incentives to siphon or dilute assets in several ways. Finally, the avoidance of pre-bankruptcy transactions can also be helpful for the early detection of financially distressed debtors, and therefore it may encourage managers to take corrective actions in a timely manner. As a result of these goals, the existence of avoidance powers seems to be socially desirable, since it helps maximize the value of the firm. However, the use – and even existence – of avoidance actions is not costless. On the one hand, it implies litigation costs. On the other hand, it can also harm legal certainty, since the use of avoiding powers implies to reverse perfectly valid transaction entered into by two parties even in the absence of bad faith. Therefore, insolvency legislators should carefully deal with these costs and benefits generally associated with avoidance provisions in order to assure the economic desirability of avoidance powers. On the basis of this exercise, this paper analyze, from a comparative and functional approach, the optimal way to design claw-back actions across jurisdictions.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"70 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85114745","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is commonly argued that no one today seems to know what a pari passu clause is doing in a sovereign debt contract. This is a problem, for pari passu is one of the most prominently displayed covenants in such documentalia. Having an utterly ubiquitous and utterly misunderstood piece of legalese hanging around numerous multi-multi-million contracts can yield untold confusion and tribulations (witness the 2011-2016 Argentina episode, for instance). Some posit that if we only knew what the clause was intended to mean when it was first used, then we will know what it should stand for today. Thus was born a new discipline: pari passu paleontology. Several elite experts have been busy scouring the past history of sovereign debt trying to dig up the original pari passu. Here I make a humble contribution to the field. I have found a sovereign pari passu from 1707. Both the context surrounding this particular clause (the Treaty of Union between England and Scotland) and the apparent intended meaning of the legal wordage (payments equality) make for an attractive case study, with potentially significant (even if perhaps not entirely welcomed) lessons for today´s researchers and practitioners.
{"title":"Olden Pari Passu in Scotland Lay","authors":"Pablo Triana","doi":"10.2139/SSRN.2840228","DOIUrl":"https://doi.org/10.2139/SSRN.2840228","url":null,"abstract":"It is commonly argued that no one today seems to know what a pari passu clause is doing in a sovereign debt contract. This is a problem, for pari passu is one of the most prominently displayed covenants in such documentalia. Having an utterly ubiquitous and utterly misunderstood piece of legalese hanging around numerous multi-multi-million contracts can yield untold confusion and tribulations (witness the 2011-2016 Argentina episode, for instance). Some posit that if we only knew what the clause was intended to mean when it was first used, then we will know what it should stand for today. Thus was born a new discipline: pari passu paleontology. Several elite experts have been busy scouring the past history of sovereign debt trying to dig up the original pari passu. Here I make a humble contribution to the field. I have found a sovereign pari passu from 1707. Both the context surrounding this particular clause (the Treaty of Union between England and Scotland) and the apparent intended meaning of the legal wordage (payments equality) make for an attractive case study, with potentially significant (even if perhaps not entirely welcomed) lessons for today´s researchers and practitioners.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"76 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90385334","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The common law requirements for an effective “pledge” of a bank account were difficult to satisfy and typically required that the secured party deprive the debtor of access to the funds on deposit. Revised Article 9 removed these impediments and, except in consumer transactions, enabled debtors to create security interests in bank accounts and other deposit accounts in the same way in which they create security interests in other collateral, by authenticating a security agreement containing a description of the collateral.To insure that widespread security interests in deposit accounts neither interrupt the free flow of funds through the payment system nor impair the willingness of payees to accept payment from deposit accounts, revised Article 9 added § 9-332(b), which addressed the rights of recipients of funds paid from an encumbered deposit account: “A transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.”Judicial opinions construing § 9-332(b) have raised a host of issues concerning its interpretation. They include the following: Who qualifies as a “transferee of funds from a deposit account”? What is a “transfer” of funds? Which security interests does § 9-332(b) affect? What does it mean to “act[ ] in collusion with the debtor”? A difference of opinion has arisen with respect to certain issues, leading to unnecessary uncertainty. Many opinions contain an analysis that is incomplete, if not just plain wrong, and some misconstrue the official comments on which they rely. The cases reveal no pattern; some erroneously deprive transferees of the protection to which § 9-332(b) entitled them; others afford protection to transferees who were not entitled.After a brief history of the development of § 9-332, this Article provides a thorough analysis of the section, its underlying policies, and the case law construing it. This Article explains where the courts have followed the law and where they have gone astray, in the hope that future opinions will construe the statute properly.
{"title":"Making Sense of UCC Section 9-332(B)","authors":"S. L. Harris","doi":"10.2139/SSRN.2835663","DOIUrl":"https://doi.org/10.2139/SSRN.2835663","url":null,"abstract":"The common law requirements for an effective “pledge” of a bank account were difficult to satisfy and typically required that the secured party deprive the debtor of access to the funds on deposit. Revised Article 9 removed these impediments and, except in consumer transactions, enabled debtors to create security interests in bank accounts and other deposit accounts in the same way in which they create security interests in other collateral, by authenticating a security agreement containing a description of the collateral.To insure that widespread security interests in deposit accounts neither interrupt the free flow of funds through the payment system nor impair the willingness of payees to accept payment from deposit accounts, revised Article 9 added § 9-332(b), which addressed the rights of recipients of funds paid from an encumbered deposit account: “A transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.”Judicial opinions construing § 9-332(b) have raised a host of issues concerning its interpretation. They include the following: Who qualifies as a “transferee of funds from a deposit account”? What is a “transfer” of funds? Which security interests does § 9-332(b) affect? What does it mean to “act[ ] in collusion with the debtor”? A difference of opinion has arisen with respect to certain issues, leading to unnecessary uncertainty. Many opinions contain an analysis that is incomplete, if not just plain wrong, and some misconstrue the official comments on which they rely. The cases reveal no pattern; some erroneously deprive transferees of the protection to which § 9-332(b) entitled them; others afford protection to transferees who were not entitled.After a brief history of the development of § 9-332, this Article provides a thorough analysis of the section, its underlying policies, and the case law construing it. This Article explains where the courts have followed the law and where they have gone astray, in the hope that future opinions will construe the statute properly.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"40 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81473921","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present new evidence on the violation of priority of claims in bankruptcy and recovery rates for secured creditors, unsecured creditors, equity holders using a sample of firms that filed for Chapter 11 bankruptcy between 1993 and 2004. Our study reveals a number of new insights: First, we find a significant reduction in the violations of priority of claims compared to research on prior periods with equity holders appearing to have lost their ability to extract concessions in violation to priority of claims. Second, the results are consistent with the hypothesis that unsecured creditors accept a violation to priority of their claims in order to obtain a faster resolution. Third, the results suggest that secured creditors are less likely, and unsecured creditors are more likely, to experience a violation to priority of their claims when secured creditors exercise increased control over the debtor (as proxied by debtor in possession financing). Finally, violations to secured creditors priority of claims are more likely when filings occur in Delaware and the Southern District of New York than elsewhere.
{"title":"Bankruptcy Resolution and the Restoration of Priority of Claims","authors":"V. Capkun, L. A. Weiss","doi":"10.2139/ssrn.2795069","DOIUrl":"https://doi.org/10.2139/ssrn.2795069","url":null,"abstract":"We present new evidence on the violation of priority of claims in bankruptcy and recovery rates for secured creditors, unsecured creditors, equity holders using a sample of firms that filed for Chapter 11 bankruptcy between 1993 and 2004. Our study reveals a number of new insights: First, we find a significant reduction in the violations of priority of claims compared to research on prior periods with equity holders appearing to have lost their ability to extract concessions in violation to priority of claims. Second, the results are consistent with the hypothesis that unsecured creditors accept a violation to priority of their claims in order to obtain a faster resolution. Third, the results suggest that secured creditors are less likely, and unsecured creditors are more likely, to experience a violation to priority of their claims when secured creditors exercise increased control over the debtor (as proxied by debtor in possession financing). Finally, violations to secured creditors priority of claims are more likely when filings occur in Delaware and the Southern District of New York than elsewhere.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"224 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77439428","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper I ask whether and how debtor protection affects aggregate small business credit quantity. Using comprehensive data on the number and amount of small business loans granted by commercial banks, and employing a robust difference-in-difference empirical design utilizing staggered shocks to personal bankruptcy exemptions, I find that increases in debtor protection increase the equilibrium quantity of small business credit in local regions. This finding is statistically significant and robust, despite competing demand and supply effects. I find that an average change in the homestead exemption results in a 1.1% increase in the number of small business loans in a local area (census tract), and a 2.5% increase in the total volume. The increase in quantity is concentrated in areas with presumably higher risk aversion and higher wealth, as predicted by the wealth insurance and collateral channels, respectively, and where local banks are better able to determine borrower type. These findings add depth to previous literature on debtor protection and small business financing that finds a tightening of credit terms, and suggest a greater role of the wealth insurance properties of personal bankruptcy law in determining aggregate small business credit quantity.
{"title":"Debtor Protection and Small Business Credit","authors":"John Hackney","doi":"10.2139/ssrn.2813669","DOIUrl":"https://doi.org/10.2139/ssrn.2813669","url":null,"abstract":"In this paper I ask whether and how debtor protection affects aggregate small business credit quantity. Using comprehensive data on the number and amount of small business loans granted by commercial banks, and employing a robust difference-in-difference empirical design utilizing staggered shocks to personal bankruptcy exemptions, I find that increases in debtor protection increase the equilibrium quantity of small business credit in local regions. This finding is statistically significant and robust, despite competing demand and supply effects. I find that an average change in the homestead exemption results in a 1.1% increase in the number of small business loans in a local area (census tract), and a 2.5% increase in the total volume. The increase in quantity is concentrated in areas with presumably higher risk aversion and higher wealth, as predicted by the wealth insurance and collateral channels, respectively, and where local banks are better able to determine borrower type. These findings add depth to previous literature on debtor protection and small business financing that finds a tightening of credit terms, and suggest a greater role of the wealth insurance properties of personal bankruptcy law in determining aggregate small business credit quantity.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"36 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72807665","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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