Achieving Parity With Bankruptcy Under Dodd-Frank

From the online version of the Harvard Business Law Review "One Way That Dodd-Frank’s Liquidation Authority Could Achieve Parity With The Bankruptcy Code" November 29, 2010, by Harvey R. Miller, Partner at Weil, Gotshal & Manges LLP, and Maurice Horwitz, Associate, at Weil, Gotshal & Manges LLP:

One of the criticisms of Title II [of the Dodd-Frank Wall Street Reform and Consumer Protection Act], however, is that creditors lack the same degree of certainty with respect to their probable treatment under an FDIC receivership as compared with the bankruptcy process. The FDIC’s typical response to this concern is that the statute guarantees creditors no less than the amount they would have received if the covered financial company had been liquidated under chapter 7 of the Bankruptcy Code.

This response is inherently flawed because it assumes that one could state objectively what a creditor’s probable recovery would be in a hypothetical chapter 7 case. All judgments of value are subjective, even if based to some extent on objective facts. It is for this reason that valuation disputes are among the most common forms of litigation in Bankruptcy Courts. However, Title II does not appear to provide any recourse to creditors who disagree with the FDIC’s determination of value in most contexts.***If,through the rulemaking process, value determinations ... can be placed in the hands of independent third party arbiters, Title II may yet achieve parity with the Bankruptcy Code.

Read the complete Harvard Business Law Review article here.