ABI Commission to Study the Reform of Chapter 11
III. Background on the Commission and the Study Project 11
12.34 In 1994, Congress again added various provisions, including changes in time limits, exemptions, and criminal penalties.35
In 1994, Congress also created the National Bankruptcy Review Commission (the “NBRC”) to foster a more systemic look at studying and reforming the Bankruptcy Code.36 The NBRC issued its report in 1997,37 and several of its recommendations were addressed to varying degrees in the amendments to the Bankruptcy Code set forth in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “BAPCPA Amendments”).38 BAPCPA implemented an extensive overhaul of both the business and consumer provisions of the Bankruptcy Code.39
BAPCPA and the prior amendments affecting chapter 11 tried to address perceived deficiencies in the Bankruptcy Code, but have in some respects altered the Bankruptcy Code’s original careful balance between a debtor’s need to rehabilitate and its creditors’ rights to recoveries on their claims against the debtor. In addition, the amendments have introduced perceived inequities among different creditor constituencies. These factors, combined with the changing economic environment and other externalities discussed below, have diluted the effectiveness of chapter 11 for many companies and their stakeholders. Reminiscent of the time preceding the work of the Commission on Bankruptcy Laws, companies once again are working to find alternatives to filing bankruptcy cases, potentially at the expense of their creditors, shareholders, and employees.40 Accordingly, after more than 35 years of experience under chapter 11, many practitioners and commentators agree that it is again time for reform.41
34 See id. § 2:16. 35 See id. § 2:17. 36 National Bankruptcy Review Comm’n Act, Pub. L. No. 103-394 §§ 601–702, 108 Stat. 4147 (codified at 11 U.S.C. § 101 (1994)). For more information about the NBRC and its composition, see http://govinfo.library.unt.edu/nbrc/index.html. 37 National Bankruptcy Review Commission Final Report: Bankruptcy: The Next Twenty Years, Oct. 20, 1997, available at http:// govinfo.library.unt.edu/nbrc/reporttitlepg.html [hereinafter NBRC Report]. 38 See Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr. L.J. 485, 487–88 (2005). 39 Lubben, supra note 9, at 407–08. 40 A restructuring law that companies seek to avoid at all costs can exasperate companies’ financial distress and negatively impact the overall economy. It can cause companies to increase leverage beyond sustainable levels in the hopes of buying time to find out-of-court solutions. It can encourage companies to engage in speculative projects, undertake precipitous reductions in workforce, and delay payments to vendors and suppliers who in turn may experience financial difficulties. This was the state of U.S. business bankruptcy laws in 1978 when Congress enacted the Bankruptcy Code to overhaul Chapters X and XI of the 1898 Bankruptcy Act. It is again the state of U.S. business bankruptcy laws, with companies — particularly small and medium-sized enterprises — avoiding a chapter 11 filing whenever possible because of inefficiencies, uncertainty, and costs associated with the chapter 11 process. See, e.g., infra note 60; Exploring Chapter 11 Reform: Corporate And Financial Institution Insolvencies; Treatment of Derivatives: Hearing Before the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the H. Comm. on the Judiciary, 113th Cong. (Mar. 26, 2014) (written testimony of Professor Michelle M. Harner, Co-Director, Business Law Program, University of Maryland Francis King Carey School of Law), at 2 & nn. 7–9 (noting that chapter 11 has become too expensive for businesses and causes companies to close rather than timely file for bankruptcy, which has adverse consequences for the companies, their employees, and the economy) (citations omitted), available at http://judiciary.house.gov/index.cfm/2014/3/hearing-exploring-chapter-11-reform-corporate-and-financial-institution-insolvencies-treatment-of-derivatives. 41 See Richard Levin & Kenneth Klee, Rethinking Chapter 11, Int’l Insolvency Inst., Twelfth Annual Int’l Insolvency Conf. (June 21–22, 2012), available at http://www.iiiglobal.org/component/jdownloads/finish/337/5966.html. See also Douglas G. Baird & Robert K. Rasmussen, Chapter 11 at Twilight, 56 Stan. L. Rev. 673 (2003); Stephen J. Lubben, Some Realism About Reorganization: Explaining the Failure of Chapter 11 Theory, 106 Dick. L. Rev. 267 (2001); Harvey R. Miller, Chapter 11 in Transition — From Boom to Bust and into the Future, 81 Am. Bankr. L.J. 375 (2007); Miller & Waisman, Does Chapter 11 Reorganization Remain a Viable Option for Distressed Businesses for the Twenty-First Century?, supra note 8; Miller & Waisman, Is Chapter 11 Bankrupt?, supra note 26; James H. M. Sprayregen et al., Chapter 11: Not Perfect, but Better than the Alternative, Am. Bankr. Inst. J., Oct. 2005, at 1; Written Statement of Bettina M. Whyte: ASM Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11 (Apr. 19, 2012) (providing an intriguing narrative story of how times have changed and the Bankruptcy Code has not), available at Commission website, infra note 55.