In order to understand the options a financially distressed business (or its owners, creditors, or potential buyers) has, one has to understand the Bankruptcy Code.
The Bankruptcy Code is contained in Title 11 of the U.S. Code and is divided into chapters. Chapters 1, 3 and 5 are “general” chapters, applicable in all cases:
Aside from these chapters is a relatively new “chapter 15” that governs cross-border insolvencies. It isn’t really a full- dress bankruptcy device like the other chapters: rather it is a mechanism for allowing domestic and foreign bankruptcy tribunals to cooperate and avoid conflicts. (For a great discussion on insolvency, we recommend this webinar and this webinar.)
Aside from the Code, bankruptcy law is found in other titles of the United States Code. Bankruptcy jurisdiction provisions are in Title 28 of the Judicial Code. Bankruptcy crimes are found in Title 18, the Federal Criminal Code. There is some bankruptcy tax law in Title 26, the Internal Revenue Code.
Although bankruptcy is federal law, it incorporates implicitly and by reference large amounts of applicable non-bankruptcy law. Some non-bankruptcy law is federal, but much is state law: contracts, property, torts, secured transactions, corporate law, intellectual property and the like. Thus, bankruptcy lawyers must, to some degree, be general business lawyers and be somewhat versed in all these fields, at least enough to know when to bring in experts in these fields.
The Federal Rules of Bankruptcy Procedure, a cousin to the Federal Rules of Civil Procedure, and the Federal Rules of Evidence, also apply in bankruptcy cases.
Finally, bankruptcy courts in a district or division (of a district) also have their own local rules. Individual judges may have their own “local, local rules.” Thus retention of local counsel can be especially helpful if an attorney is practicing pro hac vice in a jurisdiction with which she is unfamiliar.
To read other installments in this series, click here.
For a great discussion on insolvency, we recommend When a Customer Becomes Insolvent Webinar and Buying Distressed Assets and Securities Webinar. You can also learn about federal equity receiverships, and get advice on what to do when your business is struggling.
Prior to joining the faculty in 2000, Professor Kuney was a partner in the San Diego office of Allen Matkins Leck Gamble & Mallory LLP where he concentrated his practice on insolvency and reorganization matters nationwide. Before that he received his legal training with the Howard, Rice and Morrison & Foerster firms in his hometown…
Jonathan Friedland is a senior partner in Sugar Felsenthal Grais & Helsinger LLP’s Chicago office. He is ranked AV® Preeminent™ by Martindale.com, has been repeatedly recognized as a “SuperLawyer”, by Leading Lawyers Magazine, is rated 10/10 by AVVO, and has received numerous other accolades. He has been profiled, interviewed, and/or quoted in publications such as Buyouts…
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Dealing with Corporate Distress 05: The Lifecycle of a Chapter 11 Case
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