Does a rotten tree produce good fruit?

That’s the bankruptcy issue before the U.S. Supreme Court in Siegel v. Fitzgerald, where the Question is this:

“Whether the Bankruptcy Judgeship Act violates the uniformity requirement of the Bankruptcy Clause by increasing quarterly fees solely in U.S. Trustee districts.”

Note:

Question: What gets an attorney’s fee application allowed—or rejected—in bankruptcy?

Short answer: The services, (i) must be “necessary,” and (ii) must require legal expertise.

Two Recent Opinions

Two recent opinions address this question:

In a hearing yesterday, 6 April 2022, the High Court considered an application of the directors of VTB Capital PLC (VTB UK) for the appointment of Teneo Financial Advisory Limited as administrators.

In what Mr Justice Fancourt described as “an unusual case in all sorts of ways”, the English High Court was faced with a number of questions relating to how the UK’s insolvency regime can interact with the sanctions packages introduced in response to Russia’s invasion of Ukraine.

“Subchapter V is supposed to be a fast process toward plan confirmation, but I don’t see that happening!”

–Comment of a Bankruptcy Judge (as I recall the comment)

It’s true: (i) Subchapter V is supposed to go quickly, but (ii) it often doesn’t.

Here’s why it doesn’t: debtor attorneys often fail to push their cases forward.

Illustration

A bankruptcy court opinion, in a Subchapter V case, illustrates the problem.

Dale G. Higer is an attorney and a long-time Commissioner for the State of Idaho on the Uniform Law Commission. His newest role is Chair of the Commission’s newly-formed Study Committee on Assignments for Benefit of Creditors.

What follows is Mr. Higer’s report on the Commission and on the work of the newly formed Study Committee.

Uniform Law Commission

It’s time for a uniform law on the subject of assignment for benefit of creditors.

Description

Assignment for benefit of creditors laws are commonly known by the acrostic “ABC Laws”–for obvious reasons.

Such laws are a tool for owners of a distressed business in shutting the business down.

Here’s what happens in an ABC: debtor’s assets are transferred to an assignee, who then liquidates those assets and distributes proceeds to creditors.

Various Tools

Despite a valuation fight, the Senior Lenders primed by Super Senior Debt in RP1 have had their debt written off in full in RP2 without even being given the opportunity to vote on the latter restructuring plan.

The case emphasizes that it is not enough for junior creditors to send letters to the court objecting to the RP and then expect the court to argue their case for them. In the words of Lord Justice Snowden, “they must stop shouting from the spectators’ seats and step up to the plate”.

An analysis of the UK’s corporate rescue tools: The Company Voluntary Arrangement, the Scheme of Arrangement and the Restructuring Plan.

When it comes to options for the rescue of a distressed UK corporate, there had for a very long time been a growing mood of regret amongst practitioners that there was no comprehensive restructuring tool. That all changed with the introduction of the Restructuring Plan (RP).

But, as with all things new, the evitable question is: what happens to the old?

The sun has set. Yes it has.

The $7,500,000 eligibility limit for Subchapter V expired yesterday (March 28, 2022), without action by Congress to extend it.

Actually, the Subchapter V sun was set to set on March 27—but that’s a Sunday. So let’s give the benefit of the doubt and say it expired on Monday, instead.

Either way, the heightened debt limit is gone.

Hopefully, Congress can pass the heightened limit anew, after its expiration. Then, perhaps, we can be in a no-harm, no-foul mode, with no ill-effects to anyone. But that remains to be seen.

Here’s a vindication for the Small Business Administration’s discrimination against bankruptcy debtors: