By: Donald L Swanson
Congress must be allowed “to fashion a modern bankruptcy system which places the basic rudiments of the bankruptcy process in the hands of an expert equitable tribunal.”
—from Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 94 (1989) (Blackmun dissent, emphasis added).
Justice Blackmun had a point—back in 1989—that remains true today:
- Bankruptcy is a highly-specialized area of law; and
- Attorneys and judges who dabble in such things, do so at their peril.
An ABC problem
Unfortunately, state legislatures seem bent on converting assignments for benefit of creditors (“ABCs”):
- away from the historic ABC role, as a specific type of trust (with debtor as trustor, assignee as trustee, and debtor’s creditors as beneficiaries) that is free from court supervision;
- toward a court-supervised and court-controlled process; and
- into a state law version of federal bankruptcy laws—i.e., a bankruptcy-lite system.
Here’s one reason why that’s a problem:
- an expert tribunal is needed to supervise and control such a process—just like Justice Blackmun declares in his Granfinanciera dissent; and
- supervising and controlling such a process is challenging enough for expert tribunals (i.e., bankruptcy courts), let alone imposing such a thing on generalist state courts.
A Florida Illustration
–Historic ABC statutes and the courts
Historically, in Florida, ABC laws are characterized by brevity and the absence of judicial supervision. According to an article written back in 1955, for example:
- Florida’s ABC statutes are brief, covering only a single page in the compiled statutes; and
- ABCs rarely find themselves in court—only three dozen ABC cases are adjudicated in Florida over the century of time from 1851 to 1955.[Fn. 1]
–Today’s ABC statutes and the courts
But ABC times have changed in Florida. Today, Florida’s ABC statues are lengthy and impose heavy judicial involvement. Consider, for example, these two sections of Florida’s current ABC statutes—in Chapter 727—titled “General Assignments”:
- “727.102 Jurisdiction of proceedings and venue.—All proceedings under this chapter shall be subject to the order and supervision of the circuit court for the county where the petition is filed in accordance with s. 727.104(2)”; and
- “727.109 Power of the court.—The court shall have power to: . . . “ [see list of 15 numbered items in footnote 2 below]
Notably, Florida’s enumerated judicial powers over ABCs (in § 727.109) are bankruptcy-esque:
- so much for the common law ideal of ABCs being part of the law of trusts, over which courts have no authority or involvement, unless and until a dispute arises.
A Judiciary Problem
I can’t speak for Florida’s experience.
But here’s a problem with the judicial-involvement approach for ABCs in other states:
- Non-specialized courts (whose day-to-day fare consists of divorces, misdemeanors, felonies, collections, personal injuries, contract disputes and the like) are now required to also supervise the operation and liquidation of a business;
- That’s a lot to ask of state courts, especially in states with large geographical expanses and a limited number of metropolitan areas, where judicial resources are stretched far and thin; and
- When non-specialized state courts dabble, occasionally, in ABCs, they can’t do justice to either the parties or the process.
Here’s hoping that state legislatures start backing-away from the idea of state court supervision of ABCs.
Footnote 1. The article is “The Florida Law of Assignments for Benefit of Creditors,” by Julius Jay Perlmutter, 9 Miami Law Quarterly, 303-310 (5/1/1955).
Footnote 2. § 727.109, Fla. Stat., reads as follows:
“727.109 Power of the court.—The court shall have power to: [see fn. 2]
(1) Enforce all provisions of this chapter.
(2) Set, approve, or reconsider the amount of the assignee’s bond.
(3) Upon notice and a hearing, if requested, authorize the business of the assignor to be conducted by the assignee for longer than 45 calendar days, if in the best interest of the estate.
(4) Allow or disallow claims against the estate and determine their priority and establish a deadline, upon motion by the assignee, for the filing of all claims against the assignment estate arising on or after the date on which the assignor’s petition for assignment was filed with the court. The deadline may not occur less than 30 days before notice is received by mail of the order establishing the deadline.
(5) Determine any claims of exemption by the assignor, if disputed.
(6) Authorize the assignee to reject an unexpired lease of nonresidential real property or of personal property under which the assignor is the lessee pursuant to s. 727.108(5).
(7) Upon notice as provided under s. 727.111 to all creditors and consensual lienholders, hear and determine a motion brought by the assignee for approval of a proposed sale of assets of the estate other than in the ordinary course of business, or the compromise or settlement of a controversy, and enter an order granting such motion notwithstanding the lack of objection if the assignee reasonably believes that such order is necessary to proceed with the action contemplated by the motion.
(8) Hear and determine any of the following actions brought by the assignee, which she or he is empowered to maintain:
(a) Enforce the turnover of assets of the estate pursuant to s. 727.106.
(b) Determine the validity, priority, and extent of a lien or other interests in assets of the estate, or to subordinate or avoid an unperfected security interest pursuant to the assignee’s rights as a lien creditor under s. 679.3171.
(c) Avoid any conveyance or transfer void or voidable by law.
(9) Approve the assignee’s final report and interim and final distributions to creditors.
(10) Approve reasonable fees and the reimbursement of expenses for the assignee and all professional persons retained by the assignee, upon objection of a party in interest or upon the court’s own motion.
(11) Hear and determine any motion brought by a party in interest or by the court to close the estate after the passage of 1 year from the date of filing of the petition.
(12) Discharge the assignee and the assignee’s surety from liability upon matters included in the assignee’s final report.
(13) Reopen estates for cause shown.
(14) Punish by contempt any failure to comply with the provisions of this chapter or any order of the court made pursuant to this chapter.
(15) Exercise any other powers that are necessary to enforce or carry out the provisions of this chapter.”
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