ABI Law Review - "Trends in Distressed Debt Investing: An Empirical Study of Investors' Objectives"
The American Bankruptcy Institute Law Review, published twice a year by Thomson West, is among the most respected scholarly publications in the bankruptcy community. Free to ABI members, the ABI Law Review has the largest circulation of any bankruptcy law review. The Law Review is edited by top students at St. John's University School of Law under the direction of Prof. G. Ray Warner, an ABI director, former member of the ABI Executive Committee and the director of the LL.M. program at St. John's. The Spring 2008 issue contains seven articles and one LL.M. thesis on topics such as substantive consolidation in large public company bankruptcies, due process and nationwide service, wage priorities in bankruptcy, valuation practice and Daubert, Delaware's "irrelevance," consumers' post-discharge finances and non-assignable contracts in bankruptcy.
Of particular interest to the committee is the article entitled "Trends in Distressed Debt Investing: An Empirical Study of Investors' Objectives," written by Michelle M. Harner, a professor at the University of Nebraska-Lincoln College of Law. In her article, she presents and analyzes empirical data regarding the investment practices and strategies of distressed debt investors, reaching two primary conclusions. First, the activist distressed debt investors, although relatively few in number, are well-financed and relatively successfully in their attempts to influence change at or to acquire troubled companies. Second, unchecked control by these investors (or others) has the potential to lead to creditor self-dealing to the detriment of the debtor and its other stakeholders. The author suggests the creation of a more balanced playing field in bankruptcy to provide an effective check on investors' activities and a meaningful fiduciary to protect the interests of the debtor's estate. In particular, she suggests that Congress amend the Bankruptcy Code to replace all statutory committees with an estate representative - a fiduciary charged to protect and act in the best interest of the bankruptcy estate and with explicitly-defined statutory duties and responsibilities. Although still developing the concept and related alternatives fully, she believes that some change is needed to accommodate distressed debt investors and other controlling creditors in a chapter 11 process that values corporate rehabilitation and the maximization of returns to all creditors. Please click below to read the full article.