Professor David Skeel talks about the backlash of bankruptcy
Professor David Skeel of Carey Law School at the University of Pennsylvania discussed the current backlash against the bankruptcy system and the need for new regulations in the latest episode of Fresh Start.
“Bankruptcy seems to be having an identity crisis right now,” Skeel said. Amid an unusually long string of highly controversial filings, Skeel said the public had “begun to suspect it was a rigged game”.
Skeel primarily tackled three areas where the Chapter 11 system might be ripe for reform: judge shopping, the so-called Texas Two-Step, and non-consensual third-party releases.
Skeel said he believes the tools provided by the bankruptcy system are sufficient for judges to deal with potential abuses in the first two areas, without new regulation. Third-party builds, however, are an area that Skeel says could be reformed.
Some of the problems people are concerned about, when it comes to finding judges, can and have been corrected by the courts themselves, he said.
Moreover, Skeel told Congress earlier this year that judges already had the tools they needed to protect themselves from abuse stemming from the Texas Two-Step, where companies use a divisive merger to manage court liabilities for the new entity while the company Mother is staying out of Chapter 11. He pointed out on Fresh Start, however, that while he thinks judges can weed out bad cases, it’s unclear if they will.
The decision by Judge Michael Kaplan in the Chapter 11 case of Johnson & Johnson (JNJ) LTL Management LLC, which let the unit remain bankruptwas defensible, Skeel said, but the language, according to Kaplan, “made him a bit uncomfortable”.
The only area where Skeel felt “it is plausible that Congress will intervene” is in non-consensual third-party publications. He said he thought there was a case for eliminating such releases or setting a higher bar for getting a release.
Listen to the podcast with David Skeel below: