Morgan Lewis on Restructuring, September 2005

In this Issue:

• Substantive Consolidation: Owens Corning - Third Circuit Severely Restricts Availability of This Extraordinary Remedy:
  Substantive consolidation is an equitable remedy employed in multi-debtor bankruptcy cases to create one estate and one common pool of assets and liabilities from which to pay claims. Until recently, a proponent has had to meet a heavy burden to obtain this extraordinary relief. While the factors considered varied, the near-uniform focus had been on (i) whether the debtors were treated as one entity by creditors and other parties in interest and (ii) whether the debtors’ affairs were so entangled that they could not be “unscrambled.” Some courts also considered whether the harm or prejudice from consolidation was greatly outweighed by the benefits.
• Where Does a Bankruptcy Case Belong? State of Incorporation as a Basis for Venue in Bankruptcy Cases:
  The venue statute applicable to cases filed under the Bankruptcy Code2 permits the commencement of a bankruptcy case by a business entity in the district court for the district where the business entity was formed.4 A business entity’s state of formation often bears little, if any, relationship to where it actually operates, or where its assets, employees or creditors are located. However, the venue statute is consistent with prevailing state laws that permit a business entity to form in any state and avail itself of local laws, without regard to where the entity actually conducts its business or maintains assets.
• The New Chapter 15:
  The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “Act”) effects important changes to the relief available to foreign debtors in the United States. Current Bankruptcy Code (“Code”) § 304 (“§ 304”) has been repealed and replaced with  new Chapter 15, Ancillary and Other Cross Border Cases (“Chapter 15”), which adopts, in large measure, the Model Law on Cross-Border Insolvency.
• Recent Noteworthy Decisions
• Upcoming Speaking Engagements

For the full story, please view the PDF.