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2013 Bankruptcy Seminar: Under the Stars and In the Spotlight

Karen Cordry, NAAG Bankruptcy Counsel

Karen Cordry, NAAG Bankruptcy Counsel

This year’s bankruptcy seminar was held Oct. 6-9 in one of our favorite locales – Santa Fe, N.M., a venue we have revisited many times over the years. Besides all of the hard work that goes on from a Sunday opening session straight through until the end of the day on Wednesday, we also have an “optional activity” for participants. In past years, it has ranged from a special night for attendees at the Georgia O’Keefe Museum to a visit to the Cowgirl Hall of Fame and karaoke night. This year, we were exceptionally fortunate to be the guests of Attorney General Gary King for a barbeque night at his family’s beautiful ranch – one of the largest in New Mexico – that lies nestled in the Estancia Valley. After a bus ride through the New Mexico scenery, seminar attendees gazed out at miles of open land, gathered around the fire, and watched the stars emerge, including the Milky Way, a shooting star, and Venus rising next to the moon. Thanks, again, General King for a memorable evening.

The rest of the conference was equally memorable in other ways. Despite having only half as many scholarships as last year, we managed to retain almost as many attendees--156, indicating that state – and local city and county – budgets are beginning to recover and allow offices to resume paying training costs. We did, unfortunately, have to pass on having some of our federal colleagues attend due to the government shutdown. Fortunately, though, the shutdown did not put federal judges off the payroll, so we were able to enjoy a lively session on Monday afternoon with the two local New Mexico bankruptcy judges, the Hon. Robert H. Jacobvitz and the Hon. David T. Thuma, and visiting bankruptcy judge, the Hon. Eugene Wedoff, from the Northern District of Illinois. Using their law clerks as stand-ins for a variety of litigating parties, the judges conducted a whirlwind refresher on evidence issues arising in common bankruptcy litigation scenarios. In addition to reminding the “lawyers” about the values of civility and not becoming over-confident, the judges provided a wealth of information and a reminder to the veteran council in the audience that, yes, the Rules of Evidence do change over time and it behooves everyone to go back and read them again before you head into that big trial.

The other high point of the conference was our chance to make a presentation on issues relating to matters of concern to governmental entities to the Commission to Study the Reform of Chapter 11 that was formed by the American Bankruptcy Institute (ABI) in 2011 and that has been carrying out its work ever since. In 1994, Congress established the National Bankruptcy Review Commission (NBRC), which was charged with carrying out a thorough review of all aspects of bankruptcy law as it had developed in the 25-plus years after the Bankruptcy Code was enacted in 1978. The NBRC did carry out that mission, culminating in a voluminous report in the fall of 1997 on many topics ranging from major business bankruptcy issues in Chapter 11 cases to detailed recommendations for dealing with individual consumer bankruptcy cases. When Congress took up the report that fall and over the next eight years, the focus became centered in large part on the consumer bankruptcy issues. In the end, many of the proposals made on business issues were left unaddressed in the final revisions that were enacted in 2005.

Of those that were included, many have since proven controversial as to whether they have given benefits to a limited set of creditors while hampering the overall reorganization efforts. In many other ways, the change in the capital structure of companies (with many having given security interests in all of their assets long prior to their bankruptcy filing) has made reorganization much more difficult as well. The net result is that bankruptcy cases now have become much more about quickly selling the company as a going concern, or just its assets, rather than having the original company continue on. The Chapter 11 Commission was established by the ABI to allow a number of the most experienced and practical bankruptcy lawyers and other professionals to take a fresh look at many of these business issues almost 20 years after the NBRC was formed and provide their expertise and insights.

In that regard, the new developments have created many new concerns for the states, ranging from who is liable for cleaning up environmental contamination at the company being sold, to protecting the actuarial basis used in setting workers and unemployment compensation premiums for the acquiring company. When we heard about the Commission and its schedule for holding hearings, we arranged to have a four-hour session before several of the ABI commissioners who came to Santa Fe to listen to our issues.

Seven members of the Board of the States Association of Bankruptcy Attorneys (the planning group for the conference) and other state staff council presented a wide variety of topics to the Commission members and then responded to their often probing questions. The process was something of a cross between a spirited oral argument and the defense of a dissertation but the process was cordial and we hope enlightening for both sides. We will be presenting more formal detailed written analyses of these topics to the Commission before it wraps up its evidence gathering phase in February 2014. The ABI is not a lobbying group so the final product will not necessarily be a call for specific proposals but it will seek to provide unbiased illumination and insights on many of these issues that will help any party that is interested in making changes in the Code. The report should prove interesting and we hope the states’ piece will prove to be a valuable addition.

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