Morgan Lewis on Restructuring, Spring 2006

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In this Issue:

• When Worlds Collide: Sarbanes-Oxley Act § 308 vs. Bankruptcy Code §§ 510 and 1129:
  Enacted in 2002 in response to an apparent epidemic of corporate frauds, including Enron, the Corporate and Auditing Accountability, Responsibility and Transparency Act of 2002 (15 U.S.C. §7246), better known as the Sarbanes-Oxley Act, contains numerous provisions designed to hold corporate officers, directors and auditors responsible for violations of the federal securities laws.
• Diversity Jurisdiction: The Supreme Court Decides Where National Banks Live:
  Access to the federal courts is predicated upon the existence of either a federal question (i.e., a claim arising under the laws of the United States) or diversity jurisdiction. On January 17, 2006, the Supreme Court, in Wachovia Bank, N.A. v. Schmidt, held that national banks must have the same access to federal courts through diversity jurisdiction as any state bank or other corporation. The Supreme Court’s decision resolves the meaning of a single word—“located”—as it pertains to citizenship of a national bank.
• LLC Membership Interests in Bankruptcy:
  Although the first limited liability company (LLC) statutes were enacted in the late 1970s, the pervasiveness of the LLC as a form of business organization for private companies dates from the wave of enactments of state LLC statutes in the early 1990s. These statutes followed clearly upon the 1988 Internal Revenue Service ruling establishing LLCs as pass-through entities for federal income tax purposes. Congress has not yet responded to calls for clarification regarding the effect of bankruptcy law on LLCs.

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