Chapter 11's Descent into Lawlessness

Forthcoming 96 American Bankruptcy Law Journal (June 2022)

UCLA School of Law, Law-Econ Research Paper No. 21-12

58 Pages Posted: 22 Oct 2021

See all articles by Lynn M. LoPucki

Lynn M. LoPucki

University of California, Los Angeles (UCLA) - School of Law

Abstract

The bankruptcy courts that compete for big cases frequently ignore the Bankruptcy Code and Rules. This Article documents that lawlessness through a detailed examination of the court file in the Belk one-day Chapter 11 and a series of empirical studies.

Chapter 11’s lawlessness reached a new extreme in Belk. Belk filed in Houston on the evening of February 23, 2021. The court confirmed the plan at ten o’clock the next morning, and the parties consummated the plan that same afternoon. Almost none of Chapter 11’s procedural requirements were complied with. The court did not give the creditors notice of the disclosure statement or plan confirmation hearings until after those hearings were held. Belk filed no list of creditors’ names and addresses, no schedules, no statement of financial affairs, and no monthly operating reports. No creditors’ committee was appointed, no meeting of creditors was held, and none of the professionals filed fee applications. The ad hoc groups that negotiated the plan failed to file Rule 2019 disclosures. Because no schedules were filed, no proofs of claim were deemed filed. Only eighteen of Belk’s ninety-thousand creditors filed proofs of claim, and Belk apparently just made distributions to whomever Belk considered worthy.

The procedural failures in Belk are just the tip of the iceberg. The competing courts are looking the other way on retention bonuses, refusing to appoint mandatory examiners, failing to monitor venue or transfer cases, granting every request to reject collective bargaining agreements, and providing debtors with critical-vendor slush funds.

Keywords: Chapter 11, bankruptcy, venue, corruption, judge-shopping, corporate reorganization

Suggested Citation

LoPucki, Lynn M., Chapter 11's Descent into Lawlessness. Forthcoming 96 American Bankruptcy Law Journal (June 2022), UCLA School of Law, Law-Econ Research Paper No. 21-12, Available at SSRN: https://ssrn.com/abstract=3946577

Lynn M. LoPucki (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
(310) 794-5722 (Phone)

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