9 posts from July 2018

Jay Alix v. McKinsey Update

posted by Stephen Lubben

As my summer of poutine, donairs, and nippy waters winds down, a quick post to note that the long-expected motion to dismiss has been filed in the battle between the chapter 11 financial advisors. A McKinsey spokesperson also provided the following statement, which gives some insight into how they intend to respond to this case:

“Jay Alix has waged a years-long crusade against McKinsey & Company to stifle competition in the bankruptcy advisory market. His attempt to bootstrap a disclosure dispute into a RICO action is devoid of any legal basis and obviously intended to do nothing but inflict reputational damage. Courts have previously upheld the appropriateness of McKinsey’s disclosures. This lawsuit is just one more part of Mr. Alix’s anticompetitive campaign to push out of the market a competitor whose deep expertise and unmatched scale deliver superior bankruptcy outcomes.”

Ian Fletcher

posted by Jay Lawrence Westbrook

Ian Fletcher has passed away. He was a very important figure in insolvency law in England and elsewhere and a giant in the international side of our field. His passing is a great loss of a wonderful scholar and friend. His career is described on line at https://www.ucl.ac.uk/laws/people/prof-ian-fletcher and in a posting by the distinguished Dutch scholar Bob Wessels, http://www.bobwessels.nl/blog/2018-07-doc3-passing-away-of-prof-ian-f-fletcher/.

In the Festschrift in his honor I recounted how I met him:

I remember so well my first meeting with that great scholar and teacher Ian Fletcher. I had been astounded to come upon Cross-Border Insolvency: Comparative Dimensions (The Aberystwyth Papers). At a time when international and comparative insolvency was in its infancy, to come upon so sophisticated an editor and author was remarkable. As soon as I could, I hied myself to the very tip of Wales to meet him. I have learned from him and enjoyed his friendship ever since. One reason we fell in so quickly together was a common conviction that international juridical cooperation was a growing necessity and that insolvency presented perhaps the most pressing case for it. As he later put it in his outstanding treatise on international insolvency: “The increased awareness in recent times of the negative consequences of [the] international fragmentation of policy and approach to cross-border insolvency issues has fueled the quest for improved solutions.”

As part of the Internationalist Principle, he wisely advised that: “flexibility and pragmatism must be substituted for the dogmas so beloved of former ages.”

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Passing of Ian Fletcher

posted by Bob Lawless

It is with great sadness that the news reached my desk of the passing of Professor Ian Fletcher of University College London. Ian was a leading international insolvency expert, well known to all of us at Credit Slips, and we extend our condolences to his family and friends. Professor Bob Wessels has a tribute.

Silver Linings Playbook: The Weinstein Co. Chapter 11 Hearings #7 & #8

posted by Melissa Jacoby

Sale closedSince I last wrote on Credit Slips about The Weinstein Co. chapter 11, the sale of the company to Lantern Capital has  closed. Shortly after it closed, it was announced that Harvey Weinstein's brother Bob Weinstein was resigning from the TWC board of directors, along with several others. (If you read the investigative news reporting on TWC last fall through winter, you may be wondering why there hadn't been earlier board turnover. I have no good answer). Also of potential interest is that, after the closing of the sale, Lantern was immediately sued in California state court by another investment firm for breaching written and oral agreements connected with due diligence that allegedly gave Lantern a bidding advantage in buying TWC. 

The seventh public court hearing, on July 11, 2018, paved the way for the sale to close. It was then and there that Judge Sontchi, filling in for Judge Walrath, approved an amendment to the sale agreement reducing the sale price. The judge telegraphed early in hearing #7 that he viewed other pending objections (dealing with executory contracts and default cure amounts, which still remain pending) as collateral attacks on the prior sale order. The objection that would have prompted a bona fide evidentiary hearing, from the creditors' committee, had been settled.  Although hearing #8 on July 18 was extremely brief, it is clear there's much left to be worked out behind the scenes in this case - most notably, how to allocate the money.

It's Been Twelve Years

posted by Bob Lawless

12th BirthdayToday is the twelfth anniversary of the Credit Slips launch date. I always like to mark the date because it is hard to believe that it has been that long. When we started, Barack Obama was a senator, and Elizabeth Warren was blogging (for us and others). The solar system had nine planets. Worldcom was the largest bankruptcy in U.S. history, and we were trying to parse the meaning of the not-always-clear bankruptcy amendments in 2005. OK, we are still trying to do the latter.

Happy birthday to us. Thanks for reading.

And, yes, that is a picture of Zachary Taylor.

Keeping up with the Appointments Clause: Puerto Rico bankruptcy update

posted by Melissa Jacoby

In January I wrote about Aurelius seeking a do-over. In a carefully reasoned thirty-five page decision, the district court has denied the do-over.  Put more legally, the court held that PROMESA's method of establishing the Puerto Rico Oversight Board did not run afoul of the Constitution's Appointments Clause. The Oversight Board is an instrumentality of Puerto Rico, concluded the court, not officers of the United States.

Keeping up with the Contracts Clause: the Supreme Court's decision in Sveen v. Melin

posted by Melissa Jacoby

In June 2018, the U.S. Supreme Court decided Sveen v. Melin, a case applying Contracts Clause* jurisprudence to a state revocation-on-divorce statute and preexisting insurance contract. It isn't like the Supreme Court hears a Contracts Clause case every week, every term, or even every decade. Given its relevance to many Credit Slips topics, such as a financially distressed government unit without bankruptcy access or mortgage/foreclosure crises, it seems worth fostering a conversation about the case here.  

Continue reading "Keeping up with the Contracts Clause: the Supreme Court's decision in Sveen v. Melin" »

Tripling Down on Plain Meaning: Bankruptcy and the Kavanaugh Appointment

posted by Jason Kilborn

It seems fairly clear that, if Trump's latest nominee to the Supreme Court, Brett Kavanaugh, is sworn in, the Court's trend of resolving virtually all statutory disputes on the basis of "plain meaning" will be cemented in place. An analysis of Kavanaugh's bankruptcy-specific jurisprudence seems unnecessary in light of his fairly clear comments, nicely summarized by Anthony Gaughan over at the Faculty Lounge blog. His rejection of legislative history and search for intent/purpose does not bode well for bankruptcy and consumer-protection disputes, such as Obduskey v. McCarthy & Holthus LLP, the FDCPA case on the Court's docket for next year. Perhaps the words in these statutes are less clear and meaningful than those in the Constitution, but it seems likely that a Justice Kavanaugh would retreat to the comfortable confines of statutory language as frequently as possible to maintain his vision of a passive and unthreatening judiciary. Dust off your Webster's and probably also your Garner!

Unsolicited, Live Check-Credit

posted by Adam Levitin

The Washington Post has an interesting story about consumer installment lender Mariner Finance.  Three brief observations.

First, Mariner has found an interesting regulatory loophole.  The Truth in Lending Act prohibits the issuance of "live," unsolicited credit cards.  That provision, however, only applies to devices that can be used for multiple extensions of credit, not single use items like a check. So Mariner can mail out live checks to consumers (it presumably prescreens a population to target), without running afoul of the federal prohibition on mailing live, unsolicited credit cards.  That's a  creative way of reaching customers without having an extensive and expensive brick-and-mortar presence.  It also avoids some of the adverse selection problems of internet-based lending.

Second, there is no federal preemption obstacle to states prohibiting the issuance of live, unsolicited checks used to create a credit balance. Mariner seems to be the only major firm doing this, and it doesn't have any preemption argument I can see.  

Third, no one should be shocked that large financial institutions provide the money behind Mariner. Large banks don't do small dollar lending themselves; there are too many regulatory and repetitional issues, but they will provide the financing for small dollar lenders, whether by providing lines of credit or by making equity investments in them. And this has political consequences:  the lobby opposing the regulation of small dollar lenders isn't just finance companies, but also the large financial institutions that are funding them.  Consider how that might affect efforts to close the unsolicited live check loophole on either the federal or state level. 

 

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