Two distantly related items caught my eye this morning, as both reinforce the need for "creative destruction" as a response to all-too-common small business failure. The first was a NYT piece on the travails of a female entrepreneur in China. It tells a heart-wrenching story of a system in which the state brutally represses honest but unfortunate debtors, including via the infamous blacklist that prevents defaulters from using air and train travel (effectively curtailing re-entry into business, even if financial and economic factors might otherwise allow this). This is a story about what it lo ..read more

Certain members of the bankruptcy academy and bar seem to have their knickers in a twist over the Supreme Court’s grant of certiorari to review the nonconsensual nondebtor releases in Purdue. Conventional wisdom is that SCOTUS is going to find that there's no statutory authority whatsoever for nonconsensual nondebtor releases outside of the asbestos context (expressio unius and Congress doesn't hide elephants in mouseholes....). Let's be clear: nonconsensual nondebtor releases are not necessary to resolve mass tort cases. We've seen plenty of large, complex mass tort cases resolved without non ..read more

This story about the failure of a company that ships duffel bags to/from sleep-away camps has an interesting payment systems meets bankruptcy angle that got me particularly excited given that I'm teaching payment systems this fall: Parents are disputing the Camp Trucking fees with their credit card companies, but so far there haven’t been any resolutions. “We told them they’ll probably become creditors in a liquidation and get 20 cents on the dollar in five years,” said Mr. Aboudara [a camp network director]. Credit cards offer better purchase protection than any other payment medium, but it ..read more

Freight company Yellow is on the verge of bankruptcy. It's not a company whose financial distress would normally stand out but for the fact that it received $700M in national security loans from the US Treasury in 2020, and, oh man, are taxpayers going to take it on the chin.  The Treasury financing was one of a eleven of national security loans made as part of the CARES Act, and it accounted for 95% of the total dollar amount of those loans.  These weren't PPP loans, but were supposed to play a sort of analogous role, ensuring that companies critical to national security would be ab ..read more

Many countries have attempted to tap their diasporas by issuing bonds.  This has particularly been the case in times of dire need (wars, pandemics, international sanctions, financial crises, and more).  Ukraine is the most recent to have attempted to do this and failed.  Other recent failures include Pakistan, India, Ethiopia and Greece, some of whom turned to bank deposit schemes when attempts to do full scale bond issuances did not succeed A superb new paper by Doug Mulliken, motivated by the many failures to issue diaspora bonds, does a deep dive into the one program that has ..read more

The SEC has finally brought its long-anticipated lawsuit against Coinbase. The suit alleges that Coinbase has operated as an unregistered securities broker, an unregistered securities exchange, and an unregistered securities clearing agency, and that it has made unregistered sales of securities, namely of its staking-as-a-service products. The litigation hinges entirely on one key question: are any of several tokens listed or products offered by Coinbase “securities.” If the tokens and products are not securities, then Coinbase has no problem. And if they are securities, Coinbase almost assure ..read more

The Commercial Law League of America is holding a virtual event next week, free of charge and open to all, on broader implications of the Second Circuit's Purdue Pharma decision. Register here. Date and time: June 7, 2023 at noon Eastern. The panel is Candice Kline, Ralph Brubaker, Karen Cordry, and me, with Eric Van Horn moderating.  Again, here's the link to register.  ..read more

Yesterday's 2nd Circuit opinion reconfirming Purdue Pharma's settlement/restructuring plan is an enlightening read for those interested in third-party releases. In what seems to me (and the concurrence) a bit of a reach, the 2nd Circuit conceded that statutory authority more specific than section 105 was needed to support third-party releases, but the Court found such support in section 1123(b)(6): “a plan may . . . include any other appropriate provision not inconsistent with the applicable provisions of this title.” Hmmm. That's quite a slender reed on which to balance such a powerful action ..read more

Anna Gelpern, Stephen Lubben and I have an article in The American Prospect entitled The Debt Limit Is Unconstitutional—but Not for the Reason You Think. Various commentators—and members of Congress—have suggested that the President “invoke the 14th Amendment” to declare the debt limit unconstitutional. They're right to argue that the debt limit is unconstitutional, but the constitutional problem isn't the 14th Amendment. Instead, it's Article I of the Constitution, namely Congress's power to enter into contracts. The tl;dr version is that Congress has a power to make binding commitments for t ..read more

The commentary on the debt ceiling standoff has featured a bunch of mistaken conceptions from across the political spectrum. Let's address them.  Myth #1:  The 14th Amendment Prohibits a Default A variety of commentators claim that the 14th Amendment prohibits the United States from defaulting. It does nothing of the sort. Read the text of the Public Debt Clause:  The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. The ..read more