Fiduciary Principles in Bankruptcy and Insolvency

This chapter examines fiduciary duties in bankruptcy and insolvency, focusing on the bankruptcy trustee’s duties, which are triggered by virtue of appointment in a case. It first provides a background on bankruptcy law in order to elucidate the doctrines and rules affecting fiduciary responsibilities in bankruptcy, citing a number of relevant provisions in the Bankruptcy Code. It then considers the fiduciary, non-fiduciary, and anti-fiduciary obligations of the trustee under the Bankruptcy Code before discussing the fiduciary duties of care and loyalty. In particular, it highlights bankruptcy-related issues raised by the duty of loyalty with respect to secured creditors, priority unsecured creditors, general unsecured creditors, and debtors. It also explores the byzantine protective remedies available to trustees should there be a breach of fiduciary duty and concludes with an analysis of miscellaneous additional duties of the trustee in insolvency, as well as the unique challenges the debtor-in-possession (DIP) faces with its duty of loyalty. The chapter suggests that the Bankruptcy Code has many safeguards designed to confront conflicting creditor incentives, both against the DIP and in insolvency, that help fill the gaps left by reliance upon fiduciary duty law alone

Bankruptcy Fiduciary Duties in the World of Claims Trading

In earlier work, I explored the role of fiduciary duties in the bankruptcy trustee’s administration of a debtor’s estate, noting the absence of any explicit demarcation of those duties in the Bankruptcy Code. In this piece, I report the highlights of that analysis and see to what extent (if any) fiduciary duties can inform policy prescriptions for the issue of bankruptcy claims trading, colorfully referred to by some as the world of “bankruptcy M&A.” My initial take is pessimistic. Fiduciary duties, at least as traditionally conceived in bankruptcy, are unlikely to provide much help. But there is still a source of optimism. Namely, the structural and procedural institutions of the Bankruptcy Code and court system may, through a transparent, court-supervised litigation process, achieve many of the same conflict-checking functions with which fiduciary duty law concerns itself

Bankruptcy Fiduciary Duties in the World of Claims Trading

In earlier work, I explored the role of fiduciary duties in the bankruptcy trustee\u27s administration of a debtor\u27s estate, noting the absence of any explicit demarcation of those duties in the Bankruptcy Code. In this piece, I report the highlights of that analysis and see to what extent (if any) fiduciary duties can inform policy prescriptions for the issue of bankruptcy claims trading, colorfully referred to by some as the world of bankruptcy M&A. My initial take is pessimistic. Fiduciary duties, at least as traditionally conceived in bankruptcy, are unlikely to provide much help. But there is still a source of optimism. Namely, the structural and procedural institutions of the Bankruptcy Code and court system may, through a transparent, court-supervised litigation process, achieve many of the same conflict-checking functions with which fiduciary duty law concerns itself

Modular Bankruptcy: Toward a Consumer Scheme of Arrangement

In the world of cross-border corporate insolvency, those in the know are familiar with the increasingly popular scheme of arrangement, the British quasi-reorganization procedure that allows a company to restructure some, but not all, of its debt. The typical scheme effects a corporate balance sheet reshuffling by supermajoritarian approval (and judicial “sanction”) but often leaves other debt, such as the trade, untouched. A key conceptual component of the scheme mechanism is its intentional modularity, called by some its “selectivity.” It does not require a comprehensive reckoning of all claims against a given debtor, only some. The scheme has proved popular—so popular, in fact, that corporate bankruptcy market share–grabber Singapore introduced scheme-like procedures in its most recent overhaul of its insolvency system. Indeed, some wags have pronounced it the Decline and Fall of Chapter 11. Yet our European friends have struggled with how to assess the scheme legally. Formally, it originated outside insolvency law. It does not appear in Annex A of the EU Insolvency Regulation (which houses the “insolvency proceedings” entitled to automatic recognition), although it has been adjudicated by some courts to constitute an “insolvency proceeding” for purposes of, for example, the Lugano Convention and the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency. The reason for this tension arises from the deep-seated understanding in the restructuring world that one foundational pillar of what it means to be a “bankruptcy” law is that the legal intervention should be comprehensive and address all circumstances of general financial default, with its attendant collective action challenges. Talk of a “partial” bankruptcy proceeding may strike many well-socialized insolvency professionals as simply nonsensical. And yet the scheme persists; if anything, its ascendancy reveals its Darwinian staying power from market demand. Less attention—no attention, really—has been devoted to the potential applicability of the corporate scheme of arrangement to the consumer side of bankruptcy. This Article seeks to fill that gap. Specifically, this Article suggests that the intentional modularity of the scheme procedure may well be transplantable to the world of consumer debt readjustment. Such a transplant would be far from effortless. Consumer bankruptcy raises different policy concerns, implemented through different doctrines, from those raised by corporate reorganization, including such issues as, inter alia, discharge, priority, and abuse-prevention. In addition to these consumer-specific policy concerns, implementation of a consumer scheme would raise questions flowing from the attempt to resolve only part of a consumer’s financial distress. Unpacking a seeming premise of the primary extant consumer provisions of the U.S. Bankruptcy Code (Chapters 7 and 13)—that all the individual debtors’ debts will be settled and their creditors’ rights functionally extinguished—would necessarily require difficult consideration of how to address the differential treatment of secured and unsecured debt in a modular proceeding. For example, in the realm of secured debt, assets in which the debtors had equity would have to be treated differently from assets in which the debtors had no equity (and, indeed, a sizable deficiency), depending on the scope of the “partial” bankruptcy estate. Each of these challenges could be overcome, albeit doubtless with differing degrees of satisfaction, in considering a modular system of consumer bankruptcy inspired by the modern usage of the British scheme. This Article will proceed as follows. First, it will briefly canvass the major current theories of the consumer bankruptcy system to extract some conceptual foundations necessary to appraise critically the proposal for a consumer scheme. Second, it will describe the UK scheme of arrangement and its unique approach to debt adjustment, as well as examining the empirical and normative case for selective consumer relief. Third, it will outline what a consumer scheme would look like, with a focus on asset-based relief, using a proposed “car scheme” as an explanatory prototype. Fourth, it will consider in some detail the serious normative, constitutional, and doctrinal challenges to how a consumer scheme would address such issues as deficiency claims for undersecured debt and surplus equity for oversecured debt. Finally, this Article will conclude and discuss a current legislative proposal to overhaul the bankruptcy system to gauge compatibility with the scheme proposal. In doing so, this Article will argue that a consumer scheme is not just possible but desirable to accord consumers the same heterogeneity benefits of lower-cost debt relief enjoyed by their corporate insolvency peers

Modular Bankruptcy: Toward a Consumer Scheme of Arrangement

In the world of cross-border corporate insolvency, those in the know are familiar with the increasingly popular scheme of arrangement, the British quasi-reorganization procedure that allows a company to restructure some, but not all, of its debt. The typical scheme effects a corporate balance sheet reshuffling by supermajoritarian approval (and judicial sanction ) but often leaves other debt, such as the trade, untouched. A key conceptual component of the scheme mechanism is its intentional modularity, called by some its selectivity. It does not require a comprehensive reckoning of all claims against a given debtor, only some. The scheme has proved popular-so popular, in fact, that corporate bankruptcy market share-grabber Singapore introduced scheme-like procedures in its most recent overhaul of its insolvency system. Indeed, some wags have pronounced it the Decline and Fall of Chapter 11

A New Approach to Executory Contracts

This Article will proceed as follows. First, it will offer an abbreviated explanation of the treatment of executory contracts under the Code, chronicling the development of the concept of executoriness and the subsequent challenges of its effects. Second, it will explain a new approach that embraces and makes its peace with executoriness by focusing on the proper treatment of non-executory contracts. Third, it will address some of the anticipated counterarguments to the new approach. Finally, it will offer a quick road test to demonstrate how the new approach would have more easily resolved a major litigated precedent in this field

Exposure to secondhand smoke among pregnant women in Soweto, South Africa

A research report submitted to the Faculty of Health Sciences, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Medicine in Obstetrics and Gynaecology. MMed (O&G) Johannesburg, July 2016Background Tobacco secondhand smoke (SHS) has long being known for all its negative health effects. This work aimed to determine the SHS exposure rate in the pregnant population of Soweto and to determine their demographic characteristics. We also aimed to explore Soweto pregnant women’s knowledge, attitude and practice towards SHS exposure. Methods This was a prospective, cross sectional study undertaken at Chris Hani Baragwanath Academic Hospital, a tertiary hospital situated in Soweto. Soweto serves in excess of two million people, with more than 23 000 delivers annually in the hospital. This study used a questionnaire to survey a sample of pregnant women who were post caesarean section. Results A total of 100 women were interviewed. Twenty one percent reported to be exposed to SHS at home and 18% of the employed participants reported to be exposed at work. Forty three percent of the participants lived with a regular smoker and 73% had banned smoking in their house. However, even though the bans had been put in place, smoking still occurred in some of their homes. The demographic characteristics of the SHS-exposed participants compared to the non-exposed participants were similar. There was a statistically significant difference in the number of regular smokers that the participant lived with, with SHS-exposed participants being more likely to live with a regular smoker than with no regular smokers in the house. Ninety two percent of the participants reported they did not think it was appropriate that women smoke, even though some of them had previously been smokers themselves. Ninety one percent of participants were aware that SHS could have a negative effect on their babies while pregnant, and knew about health risks with SHS. Conclusion This study showed that in spite of strict anti-tobacco laws, a high percentage of pregnant women reported to be exposed to SHS at home and at work. Most were aware of the health risks of SHS, and tried to ban smoking in their homes.MT201

A New Approach to Executory Contracts

Few topics have bedeviled the bankruptcy community as much as the proper treatment of executory contracts under section 365 of the Bankruptcy Code. The case law is hopelessly convoluted and a bramble-filled thicket. While many have struggled in the bootless task of providing coherence to the unwieldy corpus of case law and commentary, all would agree Jay Westbrook has been at the modern vanguard of this Sisyphean task. (1 assign Westbrook to the modern forefront, thereby relegating Vern Countryman, whose legacy in this domain rightly persists, to the annals of history, choosing as my perhaps arbitrary dividing line the adoption of the 1978 Bankruptcy Code.

City of Chicago v. Fulton: Brief of Amici Curiae Professors John A. E. Pottow and Jay Lawrence Westbrook in Support of Respondents

Amicus Pottow is the John Philip Dawson Collegiate Professor of Law at the University of Michigan Law School. He has spent decades studying the bankruptcy system and has briefed and argued cases before this Court before on the subject of bankruptcy law. Amicus Westbrook has also spent decades studying the bankruptcy system and has briefed cases before this Court. Amici are the primary co-authors of one of the leading textbooks on debtor creditor law. Amici are members of the American College of Bankruptcy and International Insolvency Institute and have served on the U.S. delegation to the United Nations Commission on International Trade Law as expert advisers on insolvency law. Amici file this brief as part of their ongoing service to assist courts confronting important issues of bankruptcy law-here, the proper interpretation of the automatic stay under 11 U.S.C. § 362(a)-and to ensure the Court\u27s opinion is narrowly focused thereon.\u3c\p\u3e The Court should follow the clear text of § 362(a)(3)\u27s bar to any act . .. to exercise control over property of the estate. 11 U.S.C. § 362(a)(3). In interpreting that clear text, the Court should first consider several important background practices of the bankruptcy system that provide context to the statute, including the use of trustees to administer estate property, the reality that in most bankruptcy estates the trustee or debtor is in possession of secured collateral (not the secured party), and that lower courts near-unanimously agree that enforcing liens through exercising possessory rights to force repayment violates other paragraphs of the automatic stay beyond § 362(a)(3).\u3c\p\u3e Finally, the two additional arguments relied upon by the City and its supporting amici make no sense. An alternative rule to § 362(a)(3) (and § 542(a)) premised upon drawing a distinction between possessing property and possessing possession of property would make it impossible for trustees to administer their estates. Similarly, this Court\u27s opinion in Citizens of Maryland Bank v. Strumpf, 516 U.S. 16 (1995), which pertains to a creditor\u27s right to offset mutual monetary obligations, has no relevance to this case; it is simply a red herring.\u3c\p\u3

Bank of America, N. A. v. Caulkett, et al.: Brief of Bankruptcy Law Professors Robert M. Lawless, Bruce A. Markell, and John A. E. Pottow as Amici Curiae in Support of Affirmance

Amici curiae are three leading scholars of bankruptcy, commercial, and business law who have been teaching, researching, and writing about bankruptcy law for decades. They seek to provide the Court with a fuller description of the legal rules, history, and policies affected by this case