Daily News: April 20, 2015

ABI Recommendations Help Clarify Issues in Chapter 11

The Final Report of ABI’s Commission to Study the Reform of Chapter 11 identified more than 30 splits in case law on important chapter 11 issues. While it did not reach a consensus resolution on every split or ambiguity, it was able to recommend principles that would help provide certainty to all parties in a Chapter 11 case, according to the lead article in the April edition of the ABI Journal.

“Regardless of the cause, uncertainty in the interpretation of chapter 11 results in delay and increased costs for, and may permit strategic gamesmanship by, debtors and creditors alike,” wrote Commission Reporter Professsor Michelle Harner and J.D. candidate, Marc Salvia, of the University of Maryland Francis King Carey School of Law in their article “ABI Commission Creating More Certainty in Chapter 11 for All Parties.”

Harner and Salvia highlight a few of the case law splits that the Commission recommendations would fix, including:

  • Treatment of claims arising from the rejection of a collective bargaining agreement
  • The definition of “executory contract”
  • The effect of rejecting an executory contract or unexpired lease under §365
  • Treatment of trademark licenses generally
  • Debtor’s ability to sell assets free and clear of claims, as well as liens and interests
  • Fiduciary duties of professionals paid from the estate
  • Burden of proof for fraudulent transfer actions

“Resolving ambiguity under the case law would be a strong first step toward a more efficient and effective federal restructuring scheme,” Harner and Salvia write. “It may also mitigate the forum selection and cost concerns often voiced in the contest of chapter 11.”