March 2010

In what is sure to be a controversial opinion, the Third Circuit Court of Appeals (No. 09-4349) has issued an Opinion holding that the lenders in the contentious Philadelphia Newspapers’ bankruptcy case pending in the United States Bankruptcy Court for the Eastern District of Pennsylvania, No. 09-11204, may not credit bid for the sale of substantially all of the assets of Philadelphia Newspapers during a proposed auction to be conducted under Section 1129(b)(2)(A).  The Opinion affirms the decision of the District of Pennsylvania, which overruled the decision of the Bankruptcy Court.  For a good summary of the case history, click here.  The Third Circuit’s opinion is well-reasoned (using statutory construction and analysis), and even though the opinion is 2-1, it is now the law of the land (at least in the Third Circuit) and its impact on the sale process in Chapter 11 cases will be known only over time.


In an unprecedented paper entitled The Crisis, Alan Greenspan, the former Chairman of the Federal Reserve, acknowledges that the government failed to properly regulate the markets and banks under his leadership (although he also states that probably no amount of regulation could have avoided the Credit Crisis without significant and adverse effects on the economy).  Mr. Greenspan, who historically was in favor of less government regulation and deregulation, argues that regulation is necessary so that no financial institution is ever too big to fail, and states that “the primary imperative going forward has to be (1) increased regulatory capital and liquidity requirements on banks and (2) significant increases in collateral requirements for globally traded financial products.” 

He also suggests that a new bankruptcy statute should be created to handle failed financial institutions, and recommends that “we should allow large institutions to fail, and if assessed by regulators as too interconnected to liquidate quickly, be taken into a special bankruptcy facility.  Mr. Greenspan proposes that the government would have “access to taxpayer funds for debtor-in-possession financing.” He also suggests that under such a new statutory scheme, creditors would have been “subject to statutorily defined principles of discounts from par (“haircuts”) before the financial intermediary [would be] restructured … [by splitting it] up into separate units, none of which should be of a size that is too big to fail.”

The Crisis is interesting reading as it is not only reflective, but also provides an interesting perspective with recommendations for future actions by one of the most famous and powerful economist in the 20th and 21st Centuries.