Contributed by Andrea Saavedra
Valuation issues arise at every stage of a large chapter 11 case. While many articles are devoted to the role of financial analysts (and, indeed, the American Bankruptcy Institute recently released a book (http://bookstore.abi.org/practical-guide-bankruptcy-valuation) covering the issue in depth), the Bankruptcy Code itself sets out the legal framework (and timeline) for when valuation issues may come to a head. In a series of articles, we’ll explore these “valuation-infused” provisions of the Bankruptcy Code and provide a report on the most significant decisions that define these provisions, as well as report on recent chapter 11 cases in which they may have been litigated. Among other things, we will be exploring the following issues in this series:
- What constitutes insolvency? (focusing on sections 101(32) and 548 of the Bankruptcy Code)
- How does a prepetition secured creditor determine the value of its claim and secured interest? (focusing on section 506 of the Bankruptcy Code)
- When is a prepetition secured creditor entitled to adequate protection or relief from the automatic stay to foreclose on its collateral interests? (focusing on sections 361 and 362 of the Bankruptcy Code)
- How does valuation play out in a contested debtor in possession financing or motion to seek authority to use cash collateral? (focusing on sections 363 and 364 of the Bankruptcy Code)
- When do valuation issues arise in the context of 363 sales? (focusing on section 363 of the Bankruptcy Code)
- How is valuation implicated, if at all, in the Bankruptcy Code’s adequate assurance requirements relating to assumption or assignment of executory contracts and unexpired leases? (focusing on section 365 of the Bankruptcy Code)
- What is the current state of the law on litigating valuation in fraudulent transfer or preference actions, and what are current best practices for using expert testimony in such actions? (focusing on sections 547 and 548 of the Bankruptcy Code)
- How does valuation come into play in the confirmation context, whether on a consensual or cramdown basis? (focusing on sections 1123, 1124, and 1129 of the Bankruptcy Code)
- Given recent market trend (including, in particular, the increasing frequency of 363 sales in chapter 11 restructurings), should the Bankruptcy Code be amended to provide a discharge to liquidating debtors? (focusing on section 1141 of the Bankruptcy Code)
- How does the principle of finality provided in the Bankruptcy Code reflect the underlying principles of distributive equality among similarly situated creditors?
- Does the Bankruptcy Code reflect a market theory of valuation, or something else?
In developing answers to these varied questions, we will be reaching out to other contributors and hoping to provide some useful, fun, and timely tips and thoughts about bankruptcy valuation issues from the statutory lens of the Bankruptcy Code. As always, we would welcome any suggestions from our readers for topics to be included in this series, A Slice of the Pie. You can send us an email with your suggestions by clicking here.