Attorney and ABF Journal contributor Jeffrey Wurst testified before the American Bankruptcy Institute Commission to Study the Reform of Chapter 11. He was invited to testify by ABI executive director, Sam Gerdano, in response to Wurst’s article published in the March 2013 issue of the ABF Journal, “Is Chapter 11 Still a Viable Option?”

Wurst is a shareholder of the Uniondale, NY law firm, Ruskin Moscou Faltischek and chair of the firm’s Financial Services Banking and Bankruptcy Group.

The purpose of the commission, which is comprised of 22 bankruptcy practitioners, included lawyers, accountants, law professors, investment bankers and at least one retired judge, is to study and propose reforms to Chapter 11 and related statutory provisions that will better balance the goals of bringing about the effective reorganization of business debtors—with the attendant preservation and expansion of jobs—and the maximization and realization of asset values for all creditors and stakeholders.

Other panel participants offered their testimony on issues of concern ranging from a repeal of recent amendments to the Bankruptcy Code that limited the time in which Chapter 11 debtors could assume their commercial real estate leases to intellectual property. The gallery observing the testimony was comprised of bankruptcy practitioners, banking and finance company senior executives, and many sitting judges from the Southern and Eastern Districts of New York, the District of New Jersey and the District of Delaware.

Wurst’s testimony addressed two concerns: providing reasonable compensation to better assure retaining competent bankruptcy judges and the decline of middle market Chapter 11 cases as a result of the rising costs of professional fees in the bankruptcy process.

Wurst emphasized: “We cannot afford to lose judges because they cannot afford to remain on the bench.” His remarks highlighted the lack of parity in the process arguing that the Chapter 11 process is much too expensive. He pointed out that middle market companies “cannot afford to seek [bankruptcy] protection any longer.”

As bankruptcy work has slowed down, large law firms have stepped into middle-market cases, often being selected by committees of unsecured creditors dominated by large real estate companies who are the landlords to the bankrupt company. Because it is the bankrupt company that pays the fees for the committee’s attorneys, the committee members tend be cavalier about the cost structure and style of the large law firms, including their hourly rates and multi-attorney staffing. Thus, many of the middle-market companies that file for Chapter 11 are unable to survive the process because they cannot afford the cost of the professional fees. Others having observed this situation seek alternatives to Chapter 11, which, although they exist and are less costly, are often also less effective.

To view the complete testimony click here.