Après plus de deux années mouvementées marquées par une pandémie, des conflits géopolitiques mondiaux, un ralentissement économique majeur suivi d’une succession record de rebonds des marchés financiers publics et privés, le milieu des affaires a dû adapter sa gestion du risque, et ce, à maintes reprises à travers ces situations exceptionnelles. Dans ce contexte, les entreprises font et feront face à des défis de taille.
After more than two turbulent years of a pandemic, global geopolitical conflicts, a serious economic downturn followed by a series of record rebounds in public and private financial markets, the business community has had to adapt its risk management repeatedly through these exceptional situations. In this context, companies face and will continue to face major challenges.
Many years ago, back when mediation is a rarity in bankruptcy disputes, I asked an old-timer this question:
Why is the bankruptcy system a lagging adopter of mediation?”
A Surprising Answer
The old-timer gave this surprising answer:
“At the time of the Bankruptcy Code’s enactment, the bankruptcy judge was viewed as a mediator in the judge’s own court.”
The old-timer added this. When the Bankruptcy Code was enacted:
You’ve gotta admire the Debtor in In re Deirdre Ventura.
Debtor has been fighting to save a Bed and Breakfast business through bankruptcy: beginning in 2018 with a regular Chapter 11, and then struggling to get into Subchapter V.
Debtor’s is a you-can’t-make-this-stuff-up story of persistence through adversity.
Debtor has survived, for example, an inexplicably-bad appellate opinion refusing to allow Debtor’s Subchapter V election. The appellate opinion declares:
It is axiomatic – at least as a prima facie proposition – that insolvency is only concerned about assets which belong to the insolvent when the insolvency commences (or, as it is often said when a concursus creditorum is established on the commencement of insolvency). South African insolvency law respects property rights which have accrued under our law prior to the commencement of insolvency proceedings, including security interests such as mortgages, liens and cessions.
Assignment for benefit of creditors (“ABC”) has existed for centuries under the common law of England and the United States. And the ABC process has worked well under that common law!
ABC Function
ABC has been an effective tool in the toolbox of debtor and creditor remedies for resolving financial stress. Specifically, ABC allows a failing business to shut down with efficiently and credibility:
The interrelationship between an assignment for benefit of creditors (“ABC”) proceeding and an involuntary bankruptcy filing, for the same debtor, is governed by various portions of the Bankruptcy Code.
But that relationship remains ill-defined, nonetheless.
What follows is an attempt to summarize a bankruptcy court opinion dealing with that relationship. And here is two of its main conclusions:
On June 21, 2022, Congress and the President (i) extend the $7.5 million debt limit for Subchapter V eligibility, and (ii) adjust other Subchapter V rules.[Fn. 1]
One of the adjustments is this:
“Without these [mediated] settlements, there is no Plan.”
- From Opinion on Plan confirmation, In re Boy Scouts of America, Case No. 20-10343, Delaware Bankruptcy Court, Doc. 10136, at 80 (issued July 29, 2022).
The Boy Scouts of America bankruptcy has achieved a milestone: on July 29, 2022, the Bankruptcy Court issues a 281-page Opinion on confirmation of Debtor’s Plan of Reorganization. The Opinion is generally favorable toward Plan confirmation but identifies a number of issues remaining to be resolved.
“[T]he bankruptcy court— . . . (2) shall excuse compliance . . . if . . . an assignee for the benefit of the debtor’s creditors . . . was appointed or took possession more than 120 days before the date of the filing of the petition, unless . . . necessary to prevent fraud or injustice.”
11 U.S.C. § 543(d)(2) (emphasis added).[Fn. 1]