A short post about the RadLAX bankruptcy case coming before SCOTUS on Monday (following those here, here, here, and here). When I teach bankruptcy, I relate the statute and cases to the principal of property, which bankruptcy cannot take, and remedies, that can be modified or even eliminated. The power to credit bid has been one of the "bundle of rights" belonging to secured creditors at least since Nichols v. Ketcham, an 1821 New York decision. Credit bidding is part of the panoply of rights under the law of every state today. Together with the SCOTUS Radford decision in 1935, I'm convinced that the Constitution protects credit bidding.
One more thing. Charles Tabb's article agrees to a point. Tabb agrees that the Bankruptcy Code requires credit bidding but argues that the Code should be changed to permit it only if the bankruptcy court believes credit bidding is necessary to ensure a sale for the full value of the property.
Tabb bases his argument on two principal facts. First, that the world of corporate finance has changed since Congress enacted the Bankruptcy Code in 1978. Thirty-five years ago most Chapter 11 debtors had many assets not subject to security interests but today the opposite is true: almost all corporate debtors have no unencumbered assets when entering bankruptcy. Second, secured creditors--not the reorganizing debtor--run the bankruptcy case because of their pervasive control over the debtor's assets. Nothing is left over for unsecured creditors.
Putting aside a constitutional "so what," hasn't Tabb noticed that most asset values have fallen substantially since the beginning of the financial crisis in 2008? In other words, is the reason that the assets of most debtors are insufficient to fund a reorganization due to secured creditor domination or asset value depreciation? We certainly need more empirical evidence before concluding Tabb's policy-based argument should be considered.
One more thing. Charles Tabb's article agrees to a point. Tabb agrees that the Bankruptcy Code requires credit bidding but argues that the Code should be changed to permit it only if the bankruptcy court believes credit bidding is necessary to ensure a sale for the full value of the property.
Tabb bases his argument on two principal facts. First, that the world of corporate finance has changed since Congress enacted the Bankruptcy Code in 1978. Thirty-five years ago most Chapter 11 debtors had many assets not subject to security interests but today the opposite is true: almost all corporate debtors have no unencumbered assets when entering bankruptcy. Second, secured creditors--not the reorganizing debtor--run the bankruptcy case because of their pervasive control over the debtor's assets. Nothing is left over for unsecured creditors.
Putting aside a constitutional "so what," hasn't Tabb noticed that most asset values have fallen substantially since the beginning of the financial crisis in 2008? In other words, is the reason that the assets of most debtors are insufficient to fund a reorganization due to secured creditor domination or asset value depreciation? We certainly need more empirical evidence before concluding Tabb's policy-based argument should be considered.
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