ABI Commission to Study the Reform of Chapter 11
III. Background on the Commission and the Study Project 15
by the Commission and the advisory committees to provide a comparative analysis of the relevant issues. These questions generally involved the following broader topics: (i) the use of surcharges in sales; (ii) the treatment of intellectual property licenses in insolvency; (iii) financing options for insolvent companies; (iv) the role of administrators and monitors; (v) plan issues (presenting, voting, plans variations, and allocation rules); (vi) creditors’ or stakeholders’ committees; and (vii) claims trading.
The Field Hearings. The Commission held its first public hearing in April 2012 at the U.S. House of Representatives Committee on the Judiciary in the Rayburn House Office Building in Washington, D.C. Since that time, the Commission has held 16 public field hearings in 11 different cities: Boston, Las Vegas, Chicago, New York, Phoenix, San Diego, Tucson, Philadelphia, Austin, Atlanta, and Washington, D.C. Collectively, almost 90 individuals testified at these hearings.54 The testimony at each of these hearings was substantively rich and diverse. The hearings covered a variety of topics, including chapter 11 financing, general administrative and plan issues, governance, labor and benefits issues, priorities, sales, safe harbors, small and medium-sized enterprise cases, valuation, professionals’ fees, executory contracts (including commercial leases and intellectual property licenses), trade creditor issues, and reform of avoiding powers. Transcripts and videos of the hearings, and the related witness statements, are available at the Commission website.55 A summary of the hearing topics is attached at Appendix E.
Several common themes emerged from the field hearings. First, many witnesses acknowledged that chapter 11 cases have changed over time.56 These changes include: (1) a perceived increase in the number and speed of asset sales under section 363 of the Bankruptcy Code;57 (2) a perceived decrease in stand-alone reorganizations; (3) a perceived decrease in recoveries to unsecured creditors;58 and (4) a perceived increase in the costs associated with chapter 11.59 Second, the witnesses who testified on issues relating to small and medium-sized enterprises generally opined that chapter 11 no longer
Elliott (Australia), C. Fell, M. Rochkin, S. Obal and Professor J. Sarra (Canada), L. Valentovish (Japan), L. Harms (South Africa) and C. E. Poolis (England). 54 The names and affiliations of these witnesses are listed at Appendix D. 55 All testimony and statements related to the Commission’s study from 2012 through 2014 that are cited in the Report are available at the Commission website at www.commission.abi.org [hereinafter Commission website]. 56 See Oral Testimony of Bryan Marsal: NCBJ Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11, at 15–19 (Oct. 26, 2012) (NCBJ Transcript) (“There is a gradual erosion of the underlying public principle of the Code which was to preserve jobs and maximize value through rehabilitation.”), available at Commission website, supra note 55; First Report of the Commercial Fin. Ass’n to the ABI Comm’n to Study the Reform of Chapter 11: Field Hearing at Commercial Fin. Ass’n Annual Meeting, at 2 (Nov. 15, 2012) (“[A] principal criterion for evaluating any proposed amendments to the Code is the extent to which they maximize the value of companies as going concerns (thereby preserving jobs and maximizing value for creditors), either through a reorganization in those situations where reorganization is a realistic option, or through a sale or liquidation where reorganization is not a realistic option.”), available at Commission website, supra note 55. 57 See Oral Testimony of Gerald Buccino: TMA Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11, at 19 (Nov. 3, 2012) (TMA Transcript) (“When sales occur too quickly before the rehabilitative process, the yield to prepetition creditors is diminished.”), available at Commission website, supra note 55; Oral Testimony of Michael Richman: NCBJ Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11, at 20 (Oct. 26, 2012) (NCBJ Transcript) (recommending that section 363 sales should be modified so that courts can restrain hasty sales and better monitor expedited sales), available at Commission website, supra note 55. 58 See Written Statement of Paul Calahan: NACM Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11 (May 21, 2013) (“The Code and the economic environment have made it more difficult for unsecured creditors to realize fair payment of their claims . . . A voice for unsecured creditors is clearly needed and provides valuable insight to the court and other parties.”),
available at Commission website, supra note 55; Written Statement of Joseph McNamara: NACM Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11 (May 21, 2013) (“A tremendous disparity remains between payment of secured and unsecured claims and some evidence suggests secured creditors with first liens experienced outstanding recoveries, while unsecured recoveries were around 20%, with the median recovery set at 10%.”), available at Commission website, supra note 55. 59 See Written Statement of John Haggerty, Argus Management Corp.: ASM Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11 (Apr. 19, 2013) (recommending that the level of professionals should be rationalized at the onset of a case and fees and billing should be more transparent and have greater oversight during the process to keep overall costs down), available at Commission website, supra note 55.