Document Type

Article

Publication Date

Winter 2023

Abstract

In Chapter 11’s Descent into Lawlessness, I argued that “[t]he bankruptcy courts that compete for big cases frequently ignore the Bankruptcy Code and Rules.” I documented that lawlessness through a series of empirical studies of big cases and a detailed examination of the court file in In re Belk, Inc.—the first one-day Chapter 11. Belk, Inc. (“Belk”) filed in Houston on the evening of February 23, 2021, the court confirmed its plan around 10:00 a.m. the following morning, and the parties consummated the plan that same afternoon. In Chapter 11’s Descent I showed that the court in Belk failed to comply with numerous Bankruptcy Code and Bankruptcy Rules provisions. Chapter 11’s Descent was awarded the 2022 NCBJ Editor’s Prize.

In late 2023, The American Bankruptcy Law Journal published a reply to Chapter 11’s Descent by Professor Robert K. Rasmussen and bankruptcy attorney Roye Zur. In The Beauty of Belk, they claim to have shown that “Belk’s Chapter 11 case complied with every requirement of the Bankruptcy Code and Bankruptcy Rules” and “[t]he provisions of the Bankruptcy Code were followed.”

Rasmussen and Zur do not dispute my reading of any of the rules. Instead, they ascribe a sharply different meaning to “compliance.” In their view, a court complies with the Bankruptcy Code and Rules if other competing courts are doing the same thing, or if adherence serves no purpose if, as occurred in Belk, a large majority of the creditors accept the plan—whether acceptance was before or after the failure to comply.

That other courts are violating the clear language of a statute or rule does not justify its further violation. Nor does plan acceptance. To be legitimate, plan acceptance must occur within the procedural structure provided for by the Bankruptcy Code and Rules. Neither coerced nor uncoerced acceptance provides an exemption.

This response examines the nine most important of Rasmussen and Zur objections to my claims. To facilitate comparison, I juxtapose each of my claims, as expressed in my article, with their response, as expressed in their reply. To simplify presentation, I omitted the footnotes to those passages, but added them to the text when they were needed. As will be apparent from that comparison, for none of the nine claims did Rasmussen and Zur make a credible argument that the court complied with the language of the Bankruptcy Code and Rules.

Rasmussen and Zur claim that my “main complaint about the ‘lawlessness’ of the plan of reorganization in Belk is that it was, in his words, ‘upside down’.” I made no complaint that the upside down nature of the claim was lawless, and Rasmussen and Zur cite nothing in support of their claim that I did.

Part I addresses Rasmussen and Zur’s central, and most easily refuted claims: (1) notice of the hearings on disclosure statement approval and plan confirmation could be given by Belk’s attorneys instead of the court, and (2) the court validated Belk’s attorneys’ notice by reducing the notice periods. Part II examines Rasmussen and Zur’s argument that venue was proper in the Southern District of Texas. Part III considers Rasmussen and Zur’s claim that the bankruptcy courts can approve bankruptcy professional fees without receiving fee applications and, with respect to post-confirmation bankruptcy professional fees, the bankruptcy courts can delegate to the parties the authority to determine what amounts are reasonable. Part IV addresses Rasmussen and Zur’s argument that the Belk court complied with the Bankruptcy Code and Rules in waiving the meeting of creditors. Part V examines Rasmussen and Zur’s claims that Belk’s board did not breach their fiduciary duties by acting for the benefit of Sycamore, Belk’s 88 percent shareholder. Part VI concludes the Rasmussen and Zur failed to demonstrate that Belk complied with any of the nine sets of rules at issue.

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