[Crypto-Bankruptcy Series] The Public and the Private of the FTX Bankruptcy

By Diane Lourdes Dick and Christopher K. Odinet (University of Iowa)

Diane Lourdes Dick
Christopher K. Odinet

Note: This post is the third post in a series of posts on bankruptcies of cryptocurrency companies and the emerging issues they pose.  Previous posts in the series include:

1. The FTX Bankruptcy: First Week Motions, Jurisdictional Squabbling, and Other Unusual Developments, by Megan McDermott

2. Quantifying Cryptocurrency Claims in Bankruptcy: Does the Dollar Still Reign Supreme?, by Ingrid Bagby, Michele Maman, Anthony Greene, and Marc Veilleux

This series is being managed by the Bankruptcy Roundtable and Xiao Ma, SJD at Harvard Law School, xma [at] sjd [dot] law [dot] harvard [dot] edu.

Check the HLS Bankruptcy Roundtable periodically for additional contributing posts by academics and practitioners from institutions across the country.

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Bankruptcy has a public and a private side. The reorganization of a private company in chapter 11 has implications for the public, and, in some reorganizations, the public interest is quite substantial. The recent bankruptcy of the third largest crypto exchange in the world, FTX, represents just the kind of corporate restructuring where the public interest is front and center. Yet the public priority embedded in these proceedings has the potential to be overlooked. In this work, we aim to change that by shining light on the stakes, the costs, and the allocative decisions to be made in what will no doubt be described as one of the most consequential legal proceedings to happen in the world of crypto. Specifically, the outcome of these proceedings will help clear up what it means to hold crypto as a form of property, as well as the custodial v. proprietary nature of the relationship between crypto exchange companies and their customers as to rights in crypto assets. The answers to these questions will not only help resolve this bankruptcy but they will also guide lawmakers and regulators as they seek a way to regulate and police the crypto market in the future. As such, we question whether the private value capturing model that is chapter 11 is the right framework—particularly when it comes to the allocation of who bears the costs—for these largely public-oriented matters.

Click here to read the full article.

[Crypto-Bankruptcy Series] Quantifying Cryptocurrency Claims in Bankruptcy: Does the Dollar Still Reign Supreme?

By Ingrid Bagby, Michele Maman, Anthony Greene, and Marc Veilleux (Cadwalader Wickersham & Taft LLP)

Note: This post is the second post in a series of posts on bankruptcies of cryptocurrency companies and the emerging issues they pose. The first post can be read here (by Megan McDermott).

This series is being managed by the Bankruptcy Roundtable and Xiao Ma, SJD at Harvard Law School, xma [at] sjd [dot] law [dot] harvard [dot] edu.

Check the HLS Bankruptcy Roundtable periodically for additional contributing posts by academics and practitioners from institutions across the country.

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Ingrid Bagby

Michele Maman

Anthony Greene

Marc Veilleux

Crypto-watchers and bankruptcy lawyers alike have speculated how customer claims based on digital assets such as cryptocurrencies should be valued and measured under bankruptcy law. However, a crypto-centric approach to valuing claims raises a number of issues.  For example, measuring customer claims in cryptocurrency and making “in-kind” distributions of these assets could lead to creditors within the same class receiving recoveries of disparate USD value due to fluctuation in cryptocurrency prices. Moreover, the administrative burden associated with maintaining, accounting for, and distributing a wide variety of cryptocurrencies as part of a recovery scheme or plan may prove costly and complex.  Equity holders also might challenge the confirmability of a plan where valuations and recoveries are based on cryptocurrency rather than USD, as a dramatic rise in cryptocurrency values may  allow for a return of  value to equity.

A recent dispute in the Celsius bankruptcy proceedings as to whether a debtor is required to schedule claims in USD, or whether cryptocurrency claims can be scheduled “in-kind,” may serve as a preview of things to come on these issues. In Celsius, each Debtor’s schedule of unsecured creditors’ claims (Schedule E/F) listed customer claims by the number of various forms of cryptocurrency coins and account types, rather than in USD. Subsequently, a  group of Celsius preferred shareholders filed a motion directing the Debtors to amend their Schedules to reflect customer claims valued in USD, in addition to cryptocurrency coin counts.

Ultimately, the Debtors and the Series B Preferred Holders were able to consensually resolve the motion by the Debtors agreeing to amend their schedules by filing a conversion table reflecting the Debtors’ view of the rate of conversion of all cryptocurrencies listed in the Debtors’ schedules to USD as of the petition date.  However, it remains to be seen whether scheduling of claims in cryptocurrency and providing conversion tables will become the norm in similar cases involving primarily crypto-assets.  Practitioners and creditors should expect further issues to arise in the claims resolution process in crypto-related  cases as claimants and liquidation trustees (or plan administrators) wrestle with how to value claims based on such a volatile asset, subject to ever-increasing regulatory scrutiny.  For now, the bankruptcy process continues to run on USD.

The full article can be read here, and the memo is also republished by National Law Review, Lexology and Mondaq.

 

[Crypto-Bankruptcy Series] The FTX Bankruptcy: First Week Motions, Jurisdictional Squabbling, and Other Unusual Developments

By Megan McDermott (University of Wisconsin-Madison School of Law)

Megan McDermott

Note: This post is the first post in a series of posts on bankruptcies of cryptocurrency companies and the emerging issues they pose.  This series is being managed by the Bankruptcy Roundtable and Xiao Ma, SJD at Harvard Law School, xma [at] sjd [dot] law [dot] harvard [dot] edu.

Check the HLS Bankruptcy Roundtable periodically for additional contributing posts by academics and practitioners from institutions across the country.

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The FTX bankruptcy isn’t just significant for its size and scope, but also for some extraordinary procedural wrinkles.  Here are a few notable developments from the first six weeks of the FTX bankruptcy:

  • Unusual delays. Most Chapter 11 bankruptcies are the products of weeks, if not months, of behind the scenes planning.  As a result, the typical debtor is able to file a flurry of first day motions that ensure a high degree of debtor control – at least during the early stages of bankruptcy, while creditors are scrambling to find representation and determine strategy.  Not so with FTX, due to the fact that current CEO John Ray took over from Sam Bankman-Fried immediately before the Chapter 11 filing.  Ray has testified that FTX’s abysmal record-keeping and absence of corporate controls have made it extremely difficult to get an accurate picture of FTX’s assets and liabilities.  As a result, the traditional first day motions were heard a week into proceedings, and second day motions were postponed to January 11. The delay makes it easier for individual creditors to organize push back to the debtors’ plans, which could in turn impact overall creditor recovery.
  • Jurisdictional squabbling. Bahamian regulators are mounting a spirited fight to retain control over the liquidation of FTX Digital Markets, one of the many entities in FTX’s global web of related businesses.  The Bahamian regulators backed off their initial strategy of asking the Southern District of New York to open a parallel Chapter 15 proceeding.  Nonetheless, they are currently arguing that the Delaware Bankruptcy Court lacks authority to halt liquidation under Bahamanian law.  Given the rumors that Bahamanian authorities encouraged (or possibly compelled) Bankman-Fried to give Bahamanian customers preferential treatment in withdrawing frozen funds, there is a lot at stake in this jurisdictional skirmish.  In his testimony to Congress, Ray mentioned this “extraordinary pushback” but expressed confidence that these efforts would be rejected in favor of the transparency and clarity that Chapter 11 promises to all stakeholders.
  • Sealed submissions. Despite this commitment to transparency, FTX has asked to file a variety of court submissions under seal, including creditor lists.  FTX’s lawyers argue that revealing creditor names would make them a target for hacking or, at the very least, poaching by competitors of FTX.  The U.S. Trustee has objected strenuously to sealing these records, on the grounds that these risks are the trade-offs of a public and transparent proceeding.  In addition, Dow Jones, Bloomberg, and other media interests have moved to intervene in order to oppose the debtor’s efforts to avoid disclosing creditor identities.  In the Celsius bankruptcy, the Southern District of New York decisively rejected efforts to keep parts of the docket under seal.  Judge Dorsey hasn’t taken a clear position yet but has agreed to keep creditor lists under seal – for now.
  • Preferential transfers. During Congressional questioning, Ray was asked about rumors of looting in the months preceding the Chapter 11 filing, as well as some dubious post-petition maneuvers.  There are also likely to be a number of insider transfers, especially since at least one of Bankman’s Fried’s parents (Stanford Law Professor Joseph Bankman) has reportedly received payments from FTX.  Transfers between FTX and Bankman-Fried and his family may be in the billions.  Expect some bombshells as FTX seeks to use Chapter 11 to avoid these transfers.
  • Property of the estate. Major stakeholders are already wrangling to have their assets returned on the ground that these assets should not be considered property of the estate.  Of particular note are two motions filed by committees representing U.S. and non-U.S. exchange customers.  The customers are arguing that they are entitled to have their crypto assets returned rather than having to wait in line for a pro rata recovery alongside other unsecured creditors.  Although some commentators have suggested that FTX’s terms of service may support these arguments, the legal authority for how to treat these assets is far from clear.  Another early mover is crypto lender BlockFi, which is staking its claim to 56 million Robinhood shares that Alameda Research had pledged as collateral shortly before FTX’s Chapter 11 filing.  These shares have lost around 40% of their value since early November, which is part of the reason BlockFi has filed its own Chapter 11 bankruptcy in the District of New Jersey.  Bankruptcy courts across the country will likely see many similar ripple effects before FTX’s creditors see any recovery.
  • Executory contracts. Given FTX’s lavish public relations spending and celebrity co-branding, many FTX partners are undoubtedly eager to extricate themselves from the now-disgraced company.  For example, the publisher of the League of Legends video game filed an early motion for relief from the automatic stay, asking the court’s permission to halt their contractual obligation to promote FTX at various events.  Right before the new year, FTX granted their wishes, moving to reject that cobranding deal alongside a long list of other executory contracts.  FTX’s motion details almost two dozen sponsorship deals, ranging from the Golden State Warriors to Berkeley Athletics to an international cricket competition.  FTX also hopes to cast aside paid celebrity endorsements from the likes of Gisele Bundchen and Shohei Otani.  In the motion, FTX explained that “the Contracts are not integral to the Debtors’ Chapter 11 efforts, are not otherwise beneficial to the Debtors’ estates and present burdensome liabilities.”  Accordingly, FTX requested that the contracts be deemed terminated immediately.  That means the Miami Heat Arena may soon be in the market for a new naming rights partner.  (See photo.)  [Editor’s Note: On January 11, 2023, the bankruptcy court approved the termination of FTX’s naming rights: https://www.nba.com/news/miami-dade-coun…]

Please Don’t Forget the Victims: Mass Torts, Third Party Releases and the U.S. Bankruptcy Code

By Marshall S. Huebner and Marc J. Tobak (Davis Polk & Wardwell LLP)

Marshall S. Huebner
Marc J. Tobak

[Editor’s Note: The authors, along with other attorneys at Davis Polk & Wardwell LLP, represent Purdue Pharma L.P. and various affiliated debtors in connection with their ongoing bankruptcy proceedings.]

For decades, third party releases have been the cornerstone of mass tort bankruptcies that have resolved previously intractable litigation and provided meaningful compensation to victims who might well have otherwise recovered nothing.  In cases such as Johns-Manville (asbestos), A.H. Robins (Dalkon Shield), Dow Corning (silicone breast implants), Mallinckrodt (opioids), and Boy Scouts of America, courts concluded, on a developed factual record informed by pre-bankruptcy litigation history, that value-maximizing settlements and plans of reorganization were viable only by providing settling parties paying into the estate third party releases of appropriate scope.  The alternative to these broadly and deeply supported settlements, many in the billions of dollars, was years of costly and uncoordinated litigation in scores of fora and resulting in greatly diminished victim recoveries.

Critiques of third party releases often argue that these releases are in some way unfair to the parties subject to the release, or that third party release cases privilege monetary recoveries over nonmonetary goals.  This article aims to address these issues and refocus the debate on the importance of third party releases in achieving and maximizing monetary and nonmonetary goals of victims in mass tort bankruptcies.

First, we canvass the overwhelming judicial consensus that the Bankruptcy Code (including sections 105 and 1123) authorizes third-party releases and channeling injunctions where important or essential to a value-maximizing reorganization, meet additional limiting tests, and are within the court’s jurisdiction.  We highlight that a thorough examination of United States v. Energy Resources Co., 495 U.S. 545 (1990), demonstrates that the Supreme Court specifically affirmed the power of bankruptcy courts to confirm plans of reorganization that nonconsensually adjust rights and liabilities among third parties when such adjustments enable a successful reorganization.

Second, we examine how existing law—properly applied—appropriately limits third party releases to circumstances in which they maximize value for, and are broadly supported by, victims and other creditors.  Proponents of a third party release plan must not only convince the court that it is objectively superior to the alternatives; in addition, the parties directly affected by the release must vote in favor of the plan by an “overwhelming” margin.  Unsurprisingly, such plans are often crafted by creditors and debtors together, ensuring that they reflect victims’ monetary and nonmonetary goals.

Finally, we consider how mass tort resolutions would necessarily change if third party releases were to become unavailable.  We note that recent legislative initiatives to categorically ban third party releases outside the asbestos context would make mass tort victims far worse off without achieving countervailing benefits.  We recommend that legislative efforts directed at third party releases instead subject them to uniform procedures and standards.  Such legislation would address valid critiques of overused third party releases while ensuring that they remain available, under uniform standards, in cases in which they are indispensable.

Click here to read the full article.

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Note: This is the Harvard Law School Bankruptcy Roundtable’s last scheduled post for the fall of 2022.  The BRT intends to resume posting around mid-January, 2023.  The BRT wishes all its readers an enjoyable holiday season!

Second Circuit Rules that Bankruptcy Courts May Award Appellate Legal Fees as Sanction for Contempt

By Charles M. Oellermann and Mark G. Douglas (Jones Day)

Charles M. Oellermann
Mark G. Douglas

Courts disagree whether a bankruptcy court, in exercising its broad equitable powers, has the authority to award appellate legal fees as a sanction for contempt. The U.S. Court of Appeals for the Second Circuit recently weighed in on this issue as an apparent matter of first impression. In Law Offices of Francis J. Reilly, Esq. v. Selene Finance, L.P. (In re DiBattista), 33 F.4th 698 (2d Cir. 2022), the Second Circuit held that a bankruptcy court erroneously concluded that it did not have the power to award attorney fees incurred on appeal by a debtor seeking to enforce a contempt order for violations of a bankruptcy discharge order.

The Second Circuit explained that it is well settled that a bankruptcy court, exercising its broad equitable powers under section 105(a), “may compensate a debtor for a creditor’s violation of [a] discharge order” entered under section 524(a). These provisions, the court wrote, which “‘bring with them the old soil that has long governed how courts enforce injunctions,’” authorize a court to impose civil contempt sanctions to coerce compliance with an injunction or to compensate a complainant for losses arising from noncompliance. “[I]n line with long-established practice,” the Ninth Circuit explained, a bankruptcy court’s contempt power includes the authority to compensate a party for damages arising from noncompliance with an injunction, “even if those losses take the form of appellate litigation fees.”

The Second Circuit rejected the argument that the “American Rule” precludes an award of appellate fees “absent explicit statutory authority.” According to the court, an exception to the American Rule has long been recognized that permits a court to award legal fees for willful disobedience of an order entered as part of a fine levied on a contemnor.

Click here to read the full article.

 

Bankruptcy-Remote Structuring: Reallocating Risk Through Law

By Steven Schwarcz (Stanley A. Star Distinguished Professor of Law & Business, Duke University School of Law)

Steven Schwarcz

Bankruptcy-remote structuring, a legal strategy with potential public policy implications, is crucial both to a range of important financial transactions—including securitization, project finance, covered bonds, oil-and-gas and mineral production payments, and other forms of structured financing—and to the ring-fencing of utilities and other publicly essential firms. In finance, the goal is contractually to reallocate risk by structuring securities-issuing entities that, absent the bankruptcy risks inherent to operating businesses, can attract investments based on specified cash flows. In ring-fencing, the goal is contractually to structure firms to minimize bankruptcy risks, thereby assuring their continued business operations.

Parties engaging in bankruptcy-remote structuring usually seek to reallocate risk more optimally, including by reducing information asymmetry and assigning higher risk to yield-seeking investors, thereby enabling firms to diversify and lower their costs of capital. In reality, bankruptcy-remote structuring can sometimes create harmful externalities. Some blame bankruptcy-remote securitization transactions, for example, for triggering the 2007-08 global financial crisis by shifting risk from contracting parties to the public.

This Article undertakes a normative analysis of bankruptcy-remote structuring, examining the extent to which parties should have the right to reallocate bankruptcy risk. It is the first to do so both from the standpoint of public policy—examining how bankruptcy-law policy should limit freedom of contract; and also from the standpoint of cost-benefit analysis (“CBA”)—examining how externalities should limit freedom of contract.

Traditionally, CBA weighs overall costs and benefits regardless of who pays the costs and who receives the benefits. That model makes sense for a neutral governmental assessment of costs and benefits, such as deciding whether to enact new regulation. In bankruptcy-remote structuring, however, the contracting parties both advocate and significantly stand to gain from the project. From a public policy standpoint, an impartial assessment of these private actions should weigh the socially relevant costs and benefits.

In that weighing, the Article explains why the socially relevant benefits of project finance that is used to facilitate the construction of critical infrastructure projects like powerplants and toll roads, as well as the socially relevant benefits of ring-fencing that is used to protect critical utilities, should exceed the socially relevant costs. However, for more generic structured finance transactions, like securitization, the CBA weighing is more difficult. These types of bankruptcy-remote transactions have valuable public benefits that are difficult to quantify. Their social costs are also difficult to quantify. Given these difficulties, the Article merely categorizes the benefits and costs without purporting to conclude how they balance. This approach has important precedent, including for assessing the costs and benefits of the Volcker Rule.

Finally, the Article examines how to reform bankruptcy-remote structuring to reduce its externalities, thereby rebalancing the costs and benefits to try to achieve net positive benefits.

Among other things, it compares the European Union’s regulatory framework that creates incentives for simple, transparent, and standardized (“STS”) securitization transactions and urges U.S. lawmakers to consider similar securitization reforms.

The full article is available here.

Preference Due Diligence in the Crypto Winter

By Michael Rosella (Katten Muchin Rosenman LLP) and Dan McElhinney (Stretto)

Michael Rosella
Dan McElhinney

The crypto winter has arrived! Among many other issues of first impression for bankruptcy courts is the question of how the increased due diligence standards for preference actions set forth in the Small Business Reorganization Act of 2019 (the “SBRA”) will play out in a crypto case. The SBRA raised the bar on the due diligence needed to pursue preference litigation, requiring the debtor or trustee to assess “known or reasonably knowable affirmative defenses” before moving forward.

This article first assesses lingering disagreements related to the “heightened” pleading standard as applied to preference causes of action set forth in In re Valley Media and its progeny. Next, we delve into the cases interpreting the new due diligence standard set forth in the SBRA, as there is already disagreement on how to interpret the SBRA. Certain courts suggest the new due diligence standard constitutes an element of a preference claim that must be specifically pled in a complaint in order to avoid dismissal; others do not. Yet courts in this latter group, while eschewing the idea of a new element, do consider any information regarding pre-complaint due diligence efforts in the complaint, nonetheless. We then consider the issues unique to the opaque world of a cryptocurrency debtor that may impact the debtor or trustee’s ability to satisfy a heightened due diligence standard. Questions relating to the potential differences in assessing cash vs. crypto transfers and whether debtors or trustees will have access to key demographic and transaction data are considered. For example, whereas a debtor dealing in cash transfers would likely have bank statements, canceled checks, and access to accounting systems with basic transferee information, debtors transferring cryptocurrency to the independent digital wallet of a customer or counterparty would be less likely to have access to basic information necessary to satisfy a heightened due diligence standard.

We also provide key takeaways that highlight measures that cryptocurrency debtors should take to comply with the pleading and due diligence requirements. For example, a debtor in a cryptocurrency case should include in the complaint a recitation of its efforts to conduct reasonable due diligence — including efforts to obtain information needed to consider affirmative defenses, as well as reference to demand letters sent inviting the transferee to assert such defenses—to minimize any dismissal risk.

Click here to read the full article.

 

Changes and Convergence of Bankruptcy Law: Recent Experience in Brazil

By Joao Guilherme Thiesi da Silva (Cleary Gottlieb Steen & Hamilton LLP)

Joao Guilherme Thiesi da Silva

Bankruptcy regimes across the globe have been constantly changing in response to new market demands and the evolution of insolvency law principles and objectives. Part of the academic community argues that such changes may lead to a convergence of domestic bankruptcy laws, as a result of globalization and market integration. Scholars have reviewed the phenomena of changes and convergence of bankruptcy laws in Europe, East Asia and Africa. However, little attention has been given to Latin American countries, such as Brazil. This paper aims at contributing to the discussion on changes and convergence of bankruptcy law, by focusing on four recent experiences within the Brazilian legal system, namely (i) the recent adoption of the UNCITRAL Model Law on Cross-Border Insolvency, (ii) the ability of creditors to propose a competing plan of reorganization, (iii) the adoption of pre-insolvency procedures, and (iv) the recognition of bondholders’ right to vote on a plan of reorganization. This paper concludes that there are indicia of a continuous convergence of Brazilian bankruptcy law with foreign and international norms, as changes in Brazilian bankruptcy law have increasingly mirrored the law and practice of certain metropolitan nations, as well as global norms and soft laws developed by international organizations and standard setting bodies. This paper further discusses the diverse array of processes through which convergence has taken place in Brazilian bankruptcy law, as well as the main driving forces underlying this convergence, such as the increasing influence of cross-border investments and international market players.

The full article is available here.

The Cannabis Conundrum: Can Cannabis Companies File Chapter 15?

By Colin Davidson and Catherine Jun (Sheppard, Mullin, Richter & Hampton LLP)

Colin Davidson
Catherine Jun

Cannabis is now legal in 19 states and Washington D.C., driving the growth of a legal cannabis industry estimated to be valued at $33 billion this year—up 32% from 2021—and expected to reach $52 billion by 2026. This growth in the cannabis industry, of course, also means that operators and their investment partners face increased commercial risk, including insolvency. Cannabis companies have thus far been precluded from accessing federal bankruptcy protection—i.e., chapter 7 or chapter 11—largely due to the status of cannabis as an illegal substance under federal law. The legal framework used in the United States, where cannabis is illegal federally but has been legalized by many states, differs greatly from the framework in Canada. In Canada the federal Cannabis Act 2018 legalized cannabis nationwide, while the provinces maintain certain regulatory powers related to the distribution, sale and use of cannabis. This suggests that for cross-border operators one potential route to U.S. bankruptcy relief is for the company to first commence an insolvency proceeding in Canada and then seek recognition of that foreign proceeding in a U.S. bankruptcy court under chapter 15 of the Bankruptcy Code. We examine the viability of chapter 15 as an alternative avenue to the U.S. bankruptcy courts and the challenges that a cannabis company may face in an article originally published by Cannabis Business Executive.

Click here to read the full article.

 

When Benefit Corporations File For Bankruptcy, Will Anything Be Different?

By Christopher D. Hampson (University of Florida Levin College of Law)

Christopher D. Hampson

Social entrepreneurs and lawyers gave birth to the benefit corporation out of frustration with the Delaware law that governs fiduciary duties during insolvency.  The benefit corporation statutes require directors to consider general and specific public benefit alongside the interests of shareholders.  While legal scholars have grappled with whether the benefit corporation form works well to preserve social commitments, we have not yet explored fully what would happen when a benefit corporation files for bankruptcy.

I attempt to answer that question in Bankruptcy & the Benefit Corporation.  As I see it, during good times, the benefit corporation may not improve on traditional corporate forms.  After all, wise leaders can balance short-term and long-term goals and weigh the interests of shareholders against stakeholders, within the space provided by the business judgment rule.  Whether those leaders are indeed wise is probably more important than the corporate form itself.  But during bad times, the law tightens around directors, and that’s where the benefit corporation form provides extra protection for directors committed to both doing well and doing good.

My analysis of duty-based, utility-based, and character-based approaches indicates that we should want commitments to public benefit to persist into bankruptcy.  Drawing from Carl E. Schneider’s “channelling” function of law, I argue that the benefit corporation stands as a meaningful “third way” for entrepreneurs, investors, and employees, a corporate form that attracts those interested in pursuing profit while accomplishing some social goal.

When it comes to bankruptcy, some scholars are quite pessimistic about the benefit corporation’s fate.  After all, the U.S. Supreme Court has told us that the trustee in bankruptcy has a duty to maximize the value of the estate, and that duty might replace or wash out the fiduciary duties of the directors of a benefit corporation.  I am more optimistic.  The duty of the trustee in bankruptcy is famously underdefined (what kind of value?  value to whom?).   Against the Supreme Court’s vague pronouncements, 28 U.S.C. § 959 and the Butner principle suggest that state law innovations, like the benefit corporation, should control.

The remainder of the article explores the complexity of running that argument through the reticulated, multiplayer world of an insolvency case, because — well, this is bankruptcy.  Rules like adequate protection and absolute priority serve as guardrails that state law fiduciary duties cannot override.

I might be wrong, and it could be some time before we know one way or the other.  By publication, I had found one filing by a benefit corporation, Medolac Laboratories in the District of Nevada, and it didn’t raise the issues I explore in the article.  When more data comes in from benefit corporation filings, we may find out what bankruptcy courts think about the newest corporate entities to face financial distress.

The full article has been published in the American Bankruptcy Law Journal (96 Am. Bankr. L.J. 93 (2022)) and is available here.

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