Systemic risk & chapter 11

Temple Law Review

Volumn 82, Issue 2, 2009, Pages 433-449

  Lubben, Stephen J ^a  

^a SETON HALL UNIVERSITY   (United States)

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EID: 77954939357     PISSN: 08998086     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (111)

1. GEN. MOTORS CORP., 2009-2014 RESTRUCTURING PLAN 103 (2009), available at http://graphics8.nytimes.com/packages/pdf/business/20090217GMRestructuringPlan. pdf.
2. Peter S. Goodman & Jack Healy, Job Losses Hint at Vast Remaking of U.S. Economy, N.Y. TIMES, Mar. 7, 2009, at A1.
3. Under a CDS contract, the protection buyer agrees to make periodic payments to the protection seller. The protection seller agrees to pay the buyer if a "credit event " occurs with regard to a third party (GE in the example in the text). Stephen J. Lubben, Credit Derivatives and the Resolution of Financial Distress, in THE CREDIT DERIVATIVES HANDBOOK: GLOBAL PERSPECTIVES, INNOVATIONS, AND MARKET DRIVERS 47, 49 (Greg N. Gregoriou & Paul U. Ali eds., 2008).
4. In mid-March of 2009, S&P downgraded GE to AA+. GE had held a AAA rating from both major rating agencies since 1967. Binyamin Appelbaum, Berkshire, GE Lose Top Credit Ratings, WASH. POST, Mar. 13, 2009, at D01, available at http://www.washingtonpost.com/wpdyn/content/article/2009/03/12/ AR2009 031203580.html?nav=emailpage. Even at the reduced rating, this indicates less risk of default than the CDS market implied.
5. Information on the CDS market used in this paragraph comes from www.markit.com. Markit, http://www.markit.com (last visited Aug. 23, 2009) (paid access required).
6. See Paul Krugman, Op-Ed., Banking on the Brink, N.Y. TIMES, Feb. 23, 2009, at A27, available at http://www.nytimes.com/2009/02/23/opinion/23krugman. html (noting that when United States allowed Lehman Brothers to collapse into chapter 11, credit-market-dependent world financial system was nearly destroyed).
7. See Joe Nocera, Propping Up a House of Cards, N.Y. TIMES, Feb. 28, 2009, at B1 (discussing federal plans to rescue AIG);
8. Andrew Ross Sorkin, JP Morgan Pays $2 a Share for Bear Stearns, N.Y. TIMES, Mar. 17, 2008, at A1 (noting that cut-rate deal for Bear Stearns's stock was done at Federal Reserve's behest).
9. See Brian J. O'Connor, Pain and Gain Await Chrysler in Bankruptcy Court, DETROIT NEWS, May 1, 2009 (explaining Chrysler's expected execution of bankruptcy and highlighting negative aspects);
10. John Reed & Bernard Simon, GM Issues Warning on Cash and Sales, FIN. TIMES (London), Mar. 6, 2009, at 1 (discussing GM liquidity crisis and possible bankruptcy). Chrysler filed its chapter 11 petition on April 30, 2009. O'Connor, supra.
11. See Jonathan C. Lipson, The Shadow Bankruptcy System, 89 B.U. L. REV. 1609, 1612 (2009) (noting widespread fear and distrust of chapter 11 evidenced in recent economic crisis).
12. See Stephen J. Lubben, Beyond True Sales: Securitization and Chapter 11, 1 N.Y.U. J. L. & BUS. 89, 94-95 (2004) (discussing how securitization reduces costs associated with bankruptcy filing
13. Systemic risk is the risk that the failure of a firm will result in market-wide failures as a result of the firm's interconnectedness with other comparable firms in the market. See Steven L. Schwarcz, Systemic Risk, 97 GEO. L.J. 193, 196-204 (2008) (defining systemic risk as: "the risk that (i) an economic shock such as market or institutional failure triggers (through a panic or otherwise) either (X) the failure of a chain of markets or institutions or (Y) a chain of significant losses to financial institutions, (ii) resulting in increases in the cost of capital or decreases in its availability, often evidenced by substantial financialmarket price volatility ").
14. Cf. Jean Helwege, Financial Firm Bankruptcy and Systemic Risk, 20 J. INT'L FIN. MARKETS, INSTITUTIONS & MONEY, Feb. 2010, at 1, 2 (arguing that bankruptcies of financial firms "are symptomatic of common factors in portfolios that lead to wealth losses regardless of whether any particular firm files for bankruptcy ").
15. See 11 U.S.C. §; 362 (2006) (codifying automatic stay).
16. See Douglas G. Baird & Robert K. Rasmussen, The End of Bankruptcy, 55 STAN. L. REV. 751, 758-59 (2002) (noting that origins of corporate reorganization law arose from failing industrial firms such as railroad companies). because it can protect assets from bankruptcy estate);
17. Steven L. Schwarcz, Structured Finance: The New Way to Securitize Assets, 11 CARDOZO L. REV. 607, 613-19 (1990) (discussing ways to keep special vehicles or trusts which hold securities separate from bankruptcy).
18. Cf. Baher Azmy, Squaring the Predatory Lending Circle, 57 FLA. L. REV. 295, 315-16 (2005) (discussing process of securitization, including assignment of loans to special purpose vehicles, which are typically set up as trusts).
19. See Lubben, supra note 10, at 93-95 (discussing securitization's financial benefits and role in preventing piercing the corporate veil).
20. Stephen J. Lubben, Credit Derivatives and the Future of Chapter 11, 81 AM. BANKR. L.J., 2007, 405, 410, 11
21. Stephen J. Lubben, Credit Derivatives and the Future of Chapter 11, 81 AM. BANKR. L.J. 405, 410-11 (2007); see also Anna Gelpern, Domestic Bonds, Credit Derivatives, and the Next Transformation of Sovereign Debt, 83 CHI.-KENT L. REV. 147, 169 (2008) (explaining that investors use credit default swap contracts to relieve themselves of risk of holding debt).
22. See Franklin R. Edwards & Edward R. Morrison, Derivatives and the Bankruptcy Code: Why the Special Treatment?, 22 YALE J. ON REG. 91, 97 (2005) (discussing effects of legislation and congressional reasoning as evidenced in legislative history).
23. See generally Kenneth Ayotte & David A. Skeel, Jr., Bankruptcy or Bailouts?, 35 J. CORP. L. (forthcoming 2010) (manuscript at 13-17), available at http://ssrn.com/abstract=1362639 (discussing bankruptcy and governmental bailouts in context of financial institutions).
24. See Stephen J. Lubben, Business Liquidation, 81 AM. BANKR. L.J. 65, 68-69 (2007) (explaining basic features of chapter 11 liquidation and its possible benefits as compared to chapter 7 cases).
25. See Davis Polk & Wardwell Client Memo, Treasury's Proposed Resolution Authority for Systemically Significant Financial Companies, at 11-12 (Mar. 30, 2009), available at http://www.davispolk.com/1485409/clientmemos/2009/03.30.09. resolution.authority.pdf (explaining that proposed legislation would fail to create single, uniform bankruptcy code).
26. See H.R. REP. No. 109-31, pt. 1, at 20 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 105-06 (creating exceptions to reduce systemic risk in financial industry).
27. See generally Richard Levin & Alesia Ranney-Marinelli, The Creeping Repeal of Chapter 11: The Significant Business Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 603 (2005) (discussing how BAPCPA's changes to chapter 11 reorganization law generally adversely affect businesses' ability to reorganize).
28. Under the current provision, retail debtors have an extremely short period of time to decide whether to assume (perform) or reject (breach) a commercial lease agreement. See 11 U.S.C. §; 365(d)(4) (2006) (allowing court to extend time for maximum of ninety days). In a retail chapter 11 case, these decisions are central to the debtor's reorganization plan, yet often the debtor must decide well before a plan is sensibly negotiated. Before 2005, bankruptcy courts had the ability to extend the time for assumption or rejection until much later in the case, at which point a debtor could make the decision in conjunction with its overall reorganization plans. See An Act to Establish a Uniform Law on the Subject of Bankruptcies, Pub. L. No. 95-598, §; 365(b)(2), 92 Stat. 2549, 2576 (1978) (codified at 11 U.S.C. §; 365(b)(2)) (allowing court to extend debtor's decision to assume or reject commercial lease).
29. Circuit City, one of the largest electronics retailers in the country, liquidated after it was unable to find a buyer for its stores before its financing terminated. Jonathan Birchall, Circuit City to Liquidate All Stores, FIN. TIMES, Jan. 16, 2009, available at http://www.ft.com/cms/s/0/d974178c-e3eb- 11dd-8274-0000779fd2ac.html.
30. See Karen P. Ramdhanie, Note, Derivatives Contracts of Insolvent Companies: Preferential Treatment Under the Bankruptcy Code of the United States and the Insolvency Laws of the United Kingdom, 18 N.Y.L. SCH. J. INT'L & COMP. L. 269, 297-98 (1999) (discussing congressional concerns about systemic risk); see also H.R. REP. No. 109-31, pt. 1, at 3, reprinted in 2005 U.S.C.C.A.N. 88, 90 (noting legislative provisions designed to reduce systemic risk).
31. Posting of Felix Salmon to Reuters Blogs, Are CDS a Good Thing?, http://blogs.reuters.com/felix-salmon/2009/04/24/are-cds-a-good-thing (Apr. 24, 2009).
32. See infra notes 29-30 and accompanying text for an explanation of why it seems doubtful that GM fits into the typical systemic risk story, inasmuch as it is not interconnected with its peer firms.
33. See generally Stephen J. Lubben, Derivatives and Bankruptcy: The Flawed Case for Special Treatment, 12 U. PA. J. BUS. L. 61 (2009).
34. Lubben, supra note 13, at 413-17.
35. See Kenneth C. Kettering, Securitization and its Discontents: The Dynamics of Financial Product Development, 29 CARDOZO L. REV. 1553, 1648 (2008) (describing Bankruptcy Code amendment exempting over-the-counter derivative contracts).
36. Am. Int'l Group, Inc., Quarterly Report (Form 10-Q), at 42 (Aug. 6, 2008).
37. This financial information, as well as that in Table 1, comes from the AIG web page. See generally AIG, Collateral Postings Under AIGFP CDS (Mar. 18, 2009), available at http://www.aig.com/aigweb/internet/en/files/ CounterpartyAttachments031809-tcm385-155645.pdf.
38. The figures in Table 1 do not include any collateral payments that AIG made before the government's intercession in its affairs. Goldman has since argued that its exposure to AIG was hedged with other CDS contracts, and thus it would not have suffered any losses even if it had never received AIG's collateral. Of course, we have not been given any information on the ability of Goldman's counterparties to perform on those CDS contracts in the fall of 2008.
39. A similar argument about the effect of a GM bankruptcy on its suppliers supports the contention that GM's chapter 11 case would create systemic risk.
40. See James A. Fanto, The Role of Financial Regulation in Private Financial Firms: Risk Management and the Limitations of the Market Model, 3 BROOK. J. CORP. FIN. & COM. L. 29, 43-45 (2008) (arguing that flawed risk models, rather than government regulation, lead to credit crisis).
41. Thus when AIG asserted, "[a]n AIG failure could have similar or worse consequences on the global financial markets as that of the Lehman bankruptcy, " the truth of the statement turned on the doubtful assumption that the federal government would be as passive in the case of AIG as it was in the case of Lehman. AIG, Draft of AIG Risk and Bankruptcy Report 17 (Feb. 26, 2009), available at http://www.scribd.com/doc/13112282/Aig-Systemic-090309.
42. One obvious political reason to avoid this approach, of course, is the presence of several
43. See Barbara J. Houser, Chapter 11 as a Mass Tort Solution, 31 LOY. L.A. L. REV. 451, 452 (1998) (referring to chapter 11 as "a remedy of 'last resort' ").
44. The point also holds for the Treasury's proposed structure for resolving financial distress among systemically significant financial firms: in the absence of ex ante regulation and monitoring, the system will be invoked only after a problem has become obvious. See generally Davis Polk & Wardwell Client Memo, supra note 21 (discussing Treasury's plan to create new system for liquidation or reorganization of systemically significant financial firms).
45. However, the use of chapter 11 to resolve the vexing issue of asbestos liability, with multiple firms following a template initially pioneered by the Johns Manville Company, shows that even this difficulty may not be as great as would appear at first blush. See Ronald Barliant, Dimitri G. Karcazes & Anne M. Sherry, From Free-Fall to Free-For-All: The Rise of Pre-Packaged Asbestos Bankruptcies, 12 AM. BANKR. INST. L. REV. 441 (2004) (explaining how case involving Johns Manville Company and chapter 11 issues started trend in prepackaged asbestos bankruptcies).
46. Timothy D. Cedrone, A Critical Analysis of Sport Organization Bankruptcies in the United States and England: Does Bankruptcy Law Explain the Disparity in Number of Cases?, 18 SETON HALL J. SPORTS & ENT. L. 297, 310-12 (2008).
47. 11 U.S.C. §; 1141(a) (2006).
48. See, e.g., Theodore Eisenberg, The Undersecured Creditor in Reorganizations and the Nature of Security, 38 VAND. L. REV. 931, 958-60 (1985) (criticizing automatic stay provision for imposing risks on creditors without providing compensation over what would be recovered under state law in absence of bankruptcy proceeding).
49. Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 VA. L. REV. 155, 188 (1989) (characterizing automatic stay as withdrawal of creditors' state-law rights of foreclosure).
50. Lubben, supra note 29.
51. foreign institutions on Table 1. Nevertheless, AIG collateral postings that benefited domestic banks can be seen as hidden pieces of the larger bailout of the financial industry. Absent these collateral postings, the recipients would have required more direct aid from the government.
52. BankruptcyData.com, Major Bankruptcies Since 1986, http://www. bankruptcydata.com/findabrtop.asp (search "more than $1 billion " under "Company Assets ") (last visited Nov. 1, 2009).
53. See Kenneth Ayotte & Hayong Yun, Matching Bankruptcy Laws to Legal Environments, 25 J.L. ECON. & ORG. 2, 26 (2009) (noting that bankruptcy courts' decisions are made on case-by-case basis).
54. See Edwards & Morrison, supra note 14, at 101-03 (discussing automatic stay's potential systemic effects).
55. See Lubben, supra note 20, at 80-84 (discussing study in which chapter 11 cases yielded larger recoveries for creditors and took less time than chapter 7 cases).
56. John C. Anderson & Peter G. Wright, Liquidating Plans of Reorganization, 56 AM. BANKR. L.J. 29, 44-48 (1982) (explaining that chapter 11 permits liquidation, thereby avoiding duplicative efforts and reducing expenses associated with converting case to chapter 7).
57. See generally Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codifying amendments to Code).
58. See infra notes 87-93 and accompanying text for a discussion of judicially created exemptions, including the "necessity of payment " doctrine.
59. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, §; 362, 92 Stat. 2549, 2570 (1978).
60. The counting becomes a bit subjective with regard to provisions like 11 U.S.C. §; 362(b)(2) (2006), which now contains several subsections.
61. See, e.g., id. §; 362(h) (terminating automatic stay with respect to certain personal property when debtor is an individual); id. §; 362(n) (excluding certain debtors in small businesses from automatic stay provision).
62. E.g., id. §; 362(b)(2)(E) (exempting "reporting of overdue support owed by a parent " from automatic stay); id. §; 521(a)(6) (exempting certain personal property in chapter 7 proceeding for fortyfive days contingent on certain actions of debtor).
63. The original §; 362(b)(6) provided that the normal prohibition of postbankruptcy setoff in §; 362(a)(7) did not apply to "the setoff of any mutual debt and claim that are commodity futures contracts, forward commodity contracts, leverage transactions, options, warrants, rights to purchase or sell commodity futures contracts or securities, or options to purchase or sell commodities or securities. " Bankruptcy Reform Act of 1978, §; 362(b)(6), 92 Stat. 2570-71.
64. See Act of July 27, 1982, Pub. L. No. 97-222, §; 3(c), 96 Stat. 235, 236 (codified as amended at 11 U.S.C. §; 362(b)(6)) (expanding exception to, among other things, securities contracts, forward contracts, and settlement payments relating to such contracts).
65. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, §; 392, 98 Stat. 333, 365 (codified as amended at 11 U.S.C. §; 362(b)). Repo agreements are essentially a kind of secured loan, whereby one party sells securities to another party, at an amount less than the actual market value of the securities, with an agreement to buy back the securities at a fixed point in the future for an amount equal to the sale price plus interest. In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 67 B.R. 557, 566-67 (D.N.J. 1986).
66. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, §; 501(d)(7)(B)(vii), 108 Stat. 4106, 4144 (codified as amended at 11 U.S.C. §; 362(b)(17)). Congress had inadvertently enacted two section (b)(14)s.
67. Act of June 25, 1990, Pub. L. No. 101-311, §; 102(3), 104 Stat. 267, 267 (codified as amended at 11 U.S.C. §; 362(b)(17)).
68. See id. §; 103, 104 Stat. at 268 (codified as amended at 11 U.S.C. §; 546) (limiting circumstances under which trustee may avoid transfer under swap agreement).
69. Id. §; 106(a), 104 Stat. at 268 (codified as amended at 11 U.S.C. §; 560).
70. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, §; 392, 98 Stat. 333, 365 (codified as amended at 11 U.S.C. §; 362(b)). Repo agreements are essentially a kind of secured loan, whereby one party sells securities to another party, at an amount less than the actual market value of the securities, with an agreement to buy back the securities at a fixed point in the future for an amount equal to the sale price plus interest. In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 67 B.R. 557, 566-67 (D.N.J. 1986).
71. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, §; 501(d)(7)(B)(vii), 108 Stat. 4106, 4144 (codified as amended at 11 U.S.C. §; 362(b)(17)). Congress had inadvertently enacted two section (b)(14)s.
72. Act of June 25, 1990, Pub. L. No. 101-311, §; 102(3), 104 Stat. 267, 267 (codified as amended at 11 U.S.C. §; 362(b)(17)).
73. See id. §; 103, 104 Stat. at 268 (codified as amended at 11 U.S.C. §; 546) (limiting circumstances under which trustee may avoid transfer under swap agreement).
74. Id. §; 106(a), 104 Stat. at 268 (codified as amended at 11 U.S.C. §; 560).
75. See Jonathon Keath Hance, Note, Derivatives at Bankruptcy: Lifesaving Knowledge for the Small Firm, 65 WASH. & LEE L. REV. 711, 753 (2008) (linking removal of derivatives from automatic stay to increasingly expansive definition of derivative instruments).
76. See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, §; 907(a)(1)(E), 119 Stat. 23, 172-73 (codified as amended at 11 U.S.C §; 101) (amending definition of swap agreements).
77. See Financial Netting Improvements Act of 2006, Pub. L. No. 109-390, sec. 5(a)(1)(D), §; 101(53B), 120 Stat. 2692, 2695-96 (2006) (amending definition of swap agreements).
78. 11 U.S.C. §; 101(53B).
79. See generally 11 U.S.C. §;§; 362(b)(27), 362(o), 546(g), 552(a)(2)(B)(ii), 553(a)(3)(C), 553(b)(1), 560, 561 (noting in numerous sections that swap and swap-type agreements are exempt from various types of stays). There is an interesting, and perhaps unnoticed, drafting problem with the exemption written into §; 552(a)(2). The exemption arguably only applies to subpart (B), leaving postbankruptcy transfers of swaps unprotected under §; 552(a)(2)(A). Id. §; 552(a)(2). There is also a general question of what the exemption in subpart (B) really means, given that it refers to a setoff in a statutory provision that otherwise does not mention setoff. That is, it is arguable that the exception language is irrelevant to the provision in question, although the bankruptcy courts have been remarkably tolerant of Congress's drafting deficiency in interpreting the 2005 amendments to the Code.
80. See, e.g., In re DeSardi, 340 B.R. 790, 812-13 (Bankr. S.D. Texas 2006) (interpreting plain language of 2005 amendments to include exemption for postbankruptcy swap transfers).
81. 11 U.S.C. §; 548(a)(1)(A).
82. Compare id. §; 548(c) (enforcing obligations or transfers made for value and in good faith not otherwise voidable to extent of value given), with id. §; 548(d)(2)(D) (stating that swap participants receive value to extent of swap transfer).
83. See generally id. §; 101(38A) (defining master netting agreements); id. §; 101 (53B)(A)(v) (defining swap agreement); id. §; 362(b)(6)-(7) (defining exceptions to automatic stay).
84. Lubben, supra note 13, at 415 n.65.
85. See, e.g., DB Structured Prods., Inc. v. Am. Home Mortg. Holdings, Inc. (In re Am. Home Mortg. Holdings, Inc.), 402 B.R. 87, 97 (Bankr. D. Del. 2009) (finding ISCA master agreement severable).
86. See generally 11 U.S.C. §;§; 101(38A), 101(53B)(A)(iv), 561.
87. Id. §; 365(d)(4).
88. Id. §; 365(d)(2).
89. Debtors now have up to 210 days from the start of the bankruptcy case to assume or reject their nonresidential real property leases. Id. §; 365(d)(4)(B)(i). If the debtor does not act within the time allotted by the statute, the lease is automatically rejected. E.g., In re Tubular Techs., LLC, 362 B.R. 243, 246 (Bankr. D.S.C. 2006).
90. See, e.g., Debtors' Motion for Interim and Final Orders Pursuant to 11 U.S.C. §;§; 105, 361, 362, 363 and 364 and Federal Rules of Bankruptcy Procedure 2002 and 4001 (I) Authorizing Debtors (A) to Obtain Postpetition Financing and (B) to Utilize Cash Collateral; (II) Granting Adequate Protection; and (III) Scheduling Interim and Final Hearings at 19, In re Circuit City Stores, Inc., No. 08-35653, 2009 WL 484553 (Bankr. E.D. Va. Jan. 14, 2009) (detailing terms of DIP credit agreement).
91. See Levin & Ranney-Marinelli, supra note 23, at 605 (listing administrative expenses, monitoring system, and litigation made necessary by drafting ambiguities as added costs for certain types of debtors).
92. See 11 U.S.C. §; 366 (2006) (detailing rights of utilities to demand assurance of payment);
93. Bertrand Pan & Jennifer Taylor, Sustaining Power: Applying 11 U.S.C. §; 366 in Chapter 11 Post- BAPCPA, 22 EMORY BANKR. DEV. J. 371, 379-82 (2006) (suggesting courts should read good faith requirement into utility satisfaction language in §; 366 added by BAPCPA to preserve debtor-creditor balance while providing better protection for utilities).
94. Compare 11 U.S.C. §; 362(a) (setting forth broad applicability of automatic stay), with id. §; 362(b)(17) (exempting derivative instruments from automatic stay).
95. Id. §; 366(c)(4).
96. See 11 U.S.C. §; 547(c)(2) (providing that "[t]he trustee may not avoid under this section a transfer &mellip; to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was &mellip; [either] made in the ordinary course of business or financial affairs of the debtor and the transferee &mellip; [or] made according to the ordinary business terms ").
97. See Charles J. Tabb, The Brave New World of Bankruptcy Preferences, 13 AM. BANKR. INST. L. REV. 425, 440-45 (2005) (describing popularity of exception to rule barring preferential creditor payments that requires showing to bankruptcy court that debt was acquired in "ordinary course of business ").
98. Cf. Vern Countryman, The Concept of a Voidable Preference in Bankruptcy, 38 VAND. L. REV. 713, 775-76 (1985) (advocating repeal of §; 547(c)(2) because it contradicts purpose of payment preference treatment and appears unlimited in scope).
99. 11 U.S.C. §; 503(b)(3); see also Alan N. Resnick, The Future of the Doctrine of Necessity and Critical-Vendor Payments in Chapter 11 Cases, 47 B.C. L. REV. 183, 203-05 (2005) (noting that administrative status gives certain vendors priority over others).
100. Compare 11 U.S.C. §; 546(c) (setting forty-five-day time limit on reclamation), with U.C.C. §; 2-702 (amended 2003) (setting "reasonable " time limit on reclamations, as well as reserving buyers' rights in "ordinary course of business ").
101. See Melissa B. Jacoby, The Bankruptcy Code at Twenty-Five and the Next Generation of Lawmaking, 78 AM. BANKR. L.J. 221, 225-26 (2004) (discussing doctrine and noting bankruptcy experts' unwillingness to propose amendment to codify doctrine).
102. See Stephen J. Lubben, Railroad Receiverships and Modern Bankruptcy Theory, 89 CORNELL L. REV. 1420, 1447-48 (2004) (explaining that "'six month rule' "-which permitted "priority payment of operating expenses "-was expanded by doctrine of necessity).
103. See David A. Skeel, Jr., An Evolutionary Theory of Corporate Law and Corporate Bankruptcy, 51 VAND. L. REV. 1325, 1355-57 (1998) (suggesting that liquidation option was subverted for railroad companies seen as interstate infrastructure and therefore too important to collapse).
104. E.g., In re Ionosphere Clubs, Inc., 98 B.R. 174, 175-76 (Bankr. S.D.N.Y. 1989). This extension is questionable because the analogy between early railroads and airlines is flawed.
105. See Joseph Gilday, "Critical " Error: Why Essential Vendor Payments Violate the Bankruptcy Code, 11 AM. BANKR. INST. L. REV. 411, 414 (2003) (noting common bankruptcy court acquiescence to critical vendor doctrine, in which certain vendors "blessed by the court " receive money at beginning of case).
106. See In re Kmart Corp., 359 F.3d 866, 871 (7th Cir. 2004) (asserting that "'doctrine of necessity' is just a fancy name for a power to depart from the Code ").
107. See Scott D. Cousins, Postpetition Financing of Dot-Coms, 27 DEL. J. CORP. L. 759, 800-01 (2002) (discussing commonplace "rollover " of debtor's prepetition position by taking out postpetition loans to pay off prepetition debt).
108. See In re Ames Dept. Stores, Inc., 115 B.R. 34, 39-40 (Bankr. S.D.N.Y. 1990) (describing cases in which courts have refused on fairness grounds to permit debtors to make alternative financial arrangements in which creditors, and not estates, benefit).
109. See Posting of Marie Beaudette to The Wall Street Journal Blog: Bankruptcy Beat, http://blogs.wsj.com/bankruptcy/2009/03/18/bankruptcy-for-aig- think-again/(Mar. 18, 2009, 3:33 EST) (stating that AIG bankruptcy would cause derivative counterparties to immediately seize collateral used to secure contracts).
110. See Kenneth Ayotte & David A. Skeel, Jr., An Efficiency-Based Explanation for Current Corporate Reorganization Practice, 73 U. CHI. L. REV. 425, 427-29 (2006) (reviewing LYNN M. LOPUCKI, COURTING FAILURE: HOW COMPETITION FOR BIG CASES IS CORRUPTING THE BANKRUPTCY COURTS (2005), and arguing that Delaware's high refiling rate is the result of efficient organization, which attracts larger, more sophisticated parties);
111. Stephen J. Lubben, Delaware's Irrelevance, 16 AM. BANKR. INST. L. REV. 267 (2008) (discussing Professor LoPucki's series of articles accusing Delaware of diluting oversight of bankruptcy cases in order to attract large cases to the state).