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Bankruptcy Commission: Start From Scratch to Reform Bankruptcy

The Commission to Study the Reform of Chapter 11, created by the American Bankruptcy Institute, plans to submit ideas to Congress in 2014.

Does the bankruptcy code need reinvention?

That’s the central question being considered by the Commission to Study the Reform of Chapter 11, a group formed by the American Bankruptcy Institute that includes 22 key members of the industry. And its goal? It’s “literally considering starting from scratch and reinventing the statute.”

The code has had some slight modifications, but the proposed overhaul is expected to be major.

Here’s a breakdown of what the commission is trying to do:

Why the overhaul? According to Robert Keach, the commission’s cochairman, the current bankruptcy code does not account for more sophisticated capital structures and investments that have cropped up since it was introduced in 1978. “The code does not clearly provide for the treatment of such assets,” he told Reuters. The code has had some slight modifications, most recently in 2005, but the proposed overhaul is expected to be major.

What they’re doing: Members of the commission are in information-gathering mode, recently hearing feedback on the issue from attendees at the Loan Syndication and Trading Association’s conference in New York. Next up, they plan to solicit feedback at two upcoming conferences — National Conference of Bankruptcy Judges in San Diego Oct. 26 and the Turnaround Management Association conference in Boston on Nov. 3. The group is studying 13 areas of the current bankruptcy law in its research.

The result: The commission plans to submit a report in April 2014 intended as “part blueprint, part outline” for new legislation. Not everyone’s looking forward to the results. Some at the Loan Syndication and Trading Association conference on Wednesday expressed concern that the proposed rules could make it more difficult to use secured credit to reorganize in bankruptcy.

Is the American Bankruptcy Institute’s appproach to proposing new legislation a model for other lobbying groups? Let us know what you think in the comments.

Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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