Bankruptcy

Cognitive Dissonance About BAPCPA

By Jason Kilborn

I don't know why I continue to be surprised by the statements about BAPCPA made by the now-infamous Prof. Zywicki, but like a moth to a flame, I keep reading them with utter amazement. Yesterday's hearing before the House Judiciary Committee on the impact of BAPCPA on retailer reorgnaizations (i.e., Circuit City) is a perfect example (a list of witnesses and their prepared remarks is available here).

On the one hand, you have Harvey Miller, arguably the top (at least one of the top) bankruptcy lawyers in the United States, testifying that "the balancing of interests that was enacted in 1978 has been upset through a series of amendments of the Bankruptcy Code, culminating in the enactment of [BAPCPA] that have clawed back Bankruptcy Code protections that had been enacted to assist and enable a debtor to rehabilitate and reorganize its business." His full prepared statement is well worth reading.  This seems to be the majority view, approaching consensus.

Then on the other hand, you have Zywicki continuing on his "this bill is perfect" odyssey of cognitive dissonance. His remarks included these gems:  ?BAPCPA was designed to correct a system that had gotten out of whack,? and the new post-BAPCPA system in Zywicki's estimation is ?well-calibrated.? I wonder if more than a handful of people in the reorganization industry share this view. I certainly have not heard this view expressed by anyone other than Zywicki.

It gets better (rather, worse). Zywicki takes a nice jab at debtor's counsel by posing a rhetorical question:  ?is it really worth burning through $40 million to $50 million in attorneys' fees for a company whose time has passed??  Another panelist challenged Zywicki's suggestion that counsel were prolonging cases just to increase fees. I wonder if Zywicki has read the latest empirical studies of professional fees in reorganization cases, which doesn't seem to support his attack on professional fees. I am beginning to wonder if Zywicki every reads empirical studies, and if he does, whether he internalizes any of the information in those studies. His public comments don't seem to suggest that he is influenced by the facts on the ground--certainly not in consumer cases (he started the means testing craze, remember), much less in business cases. Sigh.

Full post as published by Credit Slips on March 12, 2009 (boomark / email).