Finance, Economics & Accounting
This is a dynamic time for insolvency law. Many jurisdictions have or are considering reforms to their insolvency regimes. The U.K. has proposed a new standalone restructuring mechanism that incorporates many attributes of Chapter 11, including a cross-class cram down and the absolute priority rule. A distinctive feature of the U.K proposal is the infusion of judicial discretion permitting courts to deviate from the absolute priority rule. This discretion is not permitted in the U.S. This judicial discretion addresses a key problem with the application of the absolute priority rule in the U.S. – it serves as an impediment to reorganization. This impediment is exacerbated by the recent U.S. Supreme Court decision, Czyzewski v. Jevic Holding Corp., which impacts the effective use of Chapter 11 rescue tools. This article explores the absolute priority rule, the problems associated with it and the effect of Jevic in the U.S. The case is made that the strict application of the absolute priority rule in the U.S. is antiquated and drawing on the U.K. reform proposal the author argues that the U.S. should implement reforms that infuse judicial discretion into the application of the absolute priority rule. Doing so will facilitate the underlying the policy goal of rescuing the company in Chapter 11, but also promote a broader policy goal of rescuing the business.
Landry, R.J., III (2020), Enhancing Rescue in Chapter 11: Lessons from Reform Efforts in the United Kingdom. Am Bus Law J, 57: 227-279. https://doi.org/10.1111/ablj.12158