From the Bench

Tina Brozman explains why cooperation and rehabilitation are key to better bankruptcies.

Although there wasn’t any precedent for it, I understood that there was potential for courts to work together, and I thought we should at least attempt to do this. I directed that an examiner be appointed, and gave him the mandate of harmonizing the two proceedings and working with the joint administrators to formulate a so-called protocol, which essentially was a memorandum of understanding on how the cases would be conducted. This was a massive step forward in dealing with cross-border cases [in a way that] enhances asset value rather than ensuring liquidations and fights over jurisdiction.

How does the Maxwell case rate in terms of the speed in which it was done and the end result in terms of getting the maximum value of the company?

There was a related plan of reorganization in 16 months. Now, 16 months for a case of that size is a relatively brief time frame when you consider what could have been the alternative. It’s actually nothing short of astounding. And in return to creditors, I can’t tell you what the exact return on the dollar was because I’m not sure if I ever heard it, but it was approaching 70 cents. That’s a respectable return to creditors under any scenario, let alone a cross-border scenario.

Despite the success in the Maxwell case, there continues to be a bent toward liquidation worldwide.

Yes and no. There is much more recognition of the value of saving those enterprises that warrant saving. That doesn’t mean that you salvage everything. [For instance,] UNCITRAL is involved in a new project, in which it is attempting to craft a legislative guide for insolvency systems in emerging economies. There is a clear recognition in the reports issued so far that it is advisable to have a regime that permits rehabilitation when rehabilitation is warranted.

You contend that U.S. bankruptcy law is the best in the world. Critics say it isn’t painful enough.

The bulk of [bankrupt companies] don’t make it, so I guess that it’s pretty painful. Twenty-five years ago, filing for Chapter 11 had such a deleterious effect on the conduct of the business that it could sound a death knell [for the company]. The public is now accustomed to buying products from retailers in Chapter 11 or flying on an airline that is in Chapter 11. There is still, in every case, an adverse affect from filing for Chapter 11. The question is, does the company have the wherewithal to turn things around? But because the stigma has been reduced, there may be a perception that it isn’t painful enough.

Do you think Chapter 11 is overused?

Are cases ever filed that are an abuse of the system? Yes. Is that commonplace? No. Do judges have the ability to dismiss cases that are an abuse of the process? They sure do.

Critics have charged that judges bear some responsibility for allowing bad reorganization plans to be approved. Do you agree?

Bankruptcy judges have a statutory responsibility to determine that the plan complies with the requirements for confirmation, including that the plan is feasible — that is, that confirmation is not likely to be followed by the need for further financial reorganization or liquidation. That being said, judges under our system of jurisprudence are not inquisitors; they adjudicate disputes. Where a judge is presented with unanimity among the major credit constituencies and their financial advisers, with all agreeing that the plan is feasible, it is unlikely that the judge will overrule them and find the plan not feasible, unless there is a patent defect in it.

What do you consider a successful bankruptcy?

Overall, if you are salvaging value for creditors, preserving a viable enterprise, and in the process preserving employment, that’s a successful outcome…. Republic Steel, for example, was a successful case because although we weren’t able to confirm a plan of reorganization, we were able to save the steel company and a high percentage of the jobs associated with it, then sell the company, which is still operational.


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