By: Donald L Swanson
Congress must be permitted “at long last to fashion a modern bankruptcy system which places the basic rudiments of the bankruptcy process in the hands of an expert equitable tribunal.”
- Granfinanciera v. Nordberg, 492 U.S. 33, 94 (1989) (Justices Blackmun and O’Connor dissenting, emphasis added).
Justices Blackmun and O’Connor were right, of course:
- the reach and scope of bankruptcy laws are vast;
- the Bankruptcy Code, itself, is of monstrous size and complexity;
- a huge body of caselaw construing the Bankruptcy Code already exists, from the bankruptcy courts and their appellate overseers, and continues to expand;
- the U.S. Supreme Court regularly hears bankruptcy disputes to enforce the U.S. Constitution’s requirement that bankruptcy laws be “uniform . . . throughout the United States”; and
- each business in financial stress, whether large or small, presents a unique set of circumstances that magnify the complexities inherent in our bankruptcy system, requiring flexibility and ongoing creativity within the system.
The need is undeniable, for a system of “expert equitable tribunals” to manage and apply our court-supervised bankruptcy system throughout the United States and its territories.
So, I always find it interesting . . . and a bit troubling . . . to hear of states trying to develop their own court-supervised, bankruptcy-alternative systems, under the guise of an assignment for benefit of creditors (“ABC”). Such systems tend to be in the form of:
- court-supervised liquidation processes, masquerading under the ABC name; or
- dumping ABC provisions into receivership statutes and, thereby, rendering ABC processes indistinguishable from receiverships.
What such bankruptcy-alternative ABC systems (i.e., ABC laws with court supervision) accomplish is this:
- they are rarely used; and
- state courts are ill-equipped to deal with the complexities involved.
There are exceptions, of course. Delaware has its Chancery Court, which serves as an “expert equitable tribunal” for Delaware’s ABC statutes. And Florida has its Circuit Court. But outside the few exceptions:
- states are rarely able to provide an “expert equitable tribunal” to deal with the complexities involved; and
- court-supervised ABC systems are a bust.
Conclusion
Whenever a state legislature is inclined toward converting ABCs from an out-of-court process under the common law into a court-supervised process, that legislature should consider whether such an approach:
- might destroy the prospect of ABCs being utilized in that state; and
- can be supported by an “expert equitable tribunal” to manage the liquidation of financially distressed businesses—in the same manner and with the same expertise as a bankruptcy court.
Post Script
A Drafting Committee of the Uniform Law Commission is preparing a uniform law on assignments for benefit of creditors.
My view is that such a uniform law should codify an out-of-court approach for ABCs because, inter alia, the vast majority of our United States are unable to provide the bankruptcy-like “expert equitable tribunal” that is needed to support a court-supervised system.
** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.
MEDIATBANKRY 
Dear Mr. Swanson
You have a real point. I was general counsel for Paul Nordberg, who was the liquidating trustee. The main case was Chase & Sanborn Coffee; Granfinanciera was started as a clawback of fraudulent conveyances from Granfinanciera, which was a successor to a Colombian bank that had been taken over by the government—similar to our F.D.I.C. liquidation of an insolvent bank. Granfinanciera responded with every potential affirmative defense imaginable, up to and including a request for a jury trial. The facts were rather straightforward, and the dispute came to trial in less than 2 months. Nordberg prevailed; but the defense appealed, eventually to the Supreme Court, where the only remaining issue was whether they were entitled to a jury trial . Nordberg had retained Larry Tribe, the Harvard Law professor, for the Supreme Court litigation.
Of course, the court reversed, holding that defendant was entitled to a jury trial; but did not specify which court should conduct the trial. When the case came back down on remand, rather than create more issues over where the trial should be conducted, Nordberg moved for summary judgment when the case reached the District Court on remand. After all, the case had proceeded through an entire bench trial; so there already existed a full record of all the relevant facts.
The case settled shortly before the scheduled hearing on our motion for summary judgment, so we never had to deal with the problem of where the jury trial would have been. The Bankruptcy Court was sufficient as Nordberg’s “expert equitable tribunal,” but we could anticipate difficulties that could arise from the ability of the defense to invoke jury trials outside of the specialist bankruptcy courts.
I practice in Florida. As you know, the Florida Assignment for the Benefit of Creditors , Fla. Stat. Ch. 727, bears a considerable resemblance to a simplified Chapter 7 bankruptcy. I usually explain it to non-specialists as a cross between Chapter 7, and probating the estate of a company that has died. ABC’s are handled by the Circuit Court, On a practical level, and in the larger circuits, an ABC filing can be referred to the circuit’s Complex Commercial division, which helps to deal with it via a more expert, business- savvy tribunal. In smaller circuits, however, the handling of an ABC is pot luck.
I would be happy to chat about these issues at your convenience.
Ron Neiwirth
Lubell & Rosen
200 South Andrews Avenue, Suite 900
Fort Lauderdale, Florida 33301
(cell) (305)491-1143
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Thanks, Ron, for your expertise on this!
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