Top NY Bankruptcy Judge Says Chapter 11 Still Works

Corporate Law Center in Reuters, March 31, 2009

Media Source

By Phil Wahba

NEW YORK (Reuters) - The top federal bankruptcy judge in New York on Tuesday defended Chapter 11 bankruptcy protection as a means for companies to preserve jobs and shed money-losing units in an orderly manner.

After bankruptcy code reforms in 2005, fewer companies have exited Chapter 11 bankruptcy protection. Some critics in the legal profession have argued that Chapter 11 is no longer as useful a tool to reform companies.

But in comments at Fordham University on Tuesday, Chief Judge Stuart Bernstein of the U.S. Bankruptcy Court in Manhattan said that even though Chapter 11, which governs reorganizations following bankruptcies, has become more "creditor-friendly," it gives companies tools and breathing room to fix their businesses.

"Chapter 11 provides a lot of tools to a debtor to streamline its operations, and get rid of unproductive assets," Bernstein told Reuters after his talk.

Though Bernstein declined to directly speak of a possible bankruptcy filing by carmaker General Motors because the case could land in his court, he did say bankruptcy law provides many tools, though it's not obvious they can be easily used.

"As a general matter, you'd have to abrogate a collective bargaining agreement -- but that's easier said than done and it can cause a lot of litigation," Bernstein said.