Bankruptcy Commission: Secured Lending OK by Us

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This CFO Magazine Article features Bernstein Shur Attorney Robert Keach.

An American Bankruptcy Institute commission studying an overhaul of the U.S. Bankruptcy Code believes the proliferation of secured debt and the trading of bankruptcy claims, among other developments, have made the code outdated. But the co-chairs of the commission made it clear on a Monday conference call that they do not see either practice as inherently harmful to businesses seeking to survive the Chapter 11 process.

“There’s been an assumption by some, an incorrect one, that because [the commission] identified those two externalities — claims trading and the growth of secured debt — that we were identifying them as problems to be solved,” said Robert Keach, an attorney at Bernstein Shur and co-chair of the ABI’s Commission to Study the Reform of Chapter 11. But that was never the commission’s intention, he said. What the commission was pointing out by including those two changes in its mission statement, said Keach, was that they create an environment not envisioned in the 1978 code.

The 1978 Bankruptcy Code, partly revised in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act, was designed to rehabilitate businesses and preserve jobs and tax bases at the state, local, and federal levels, the commission has said. But the involvement of outside creditor parties in bankruptcy has caused other aims — such as liquidation of the debtor to maximize creditor recovery — to gain prominence.

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