How the big boys deal with bankruptcies

Recently a reader asked about whether there might be a business opportunity for companies that specialize in bankruptcies. Actually there are already such companies – they are law firms. The courts appoint trustees from a list of specialists. It’s a rare breed – they have to know the law and know how to run or liquidate a business.

Here’s a good WSJ article on the current status of dealing with BK companies with higher profiles: U.S. Lacks Hard Data Tracking Pay Fights

Justice says it doesn’t “track how it is enforcing a law curbing executive pay in corporate bankruptcy cases.” Even though their “U.S. trustees monitor bankruptcy proceedings.” Amazing, eh?

Details on how bankruptcies are handled in the U.S. include: “Court-appointed trustees like Mr. Freeh run companies under bankruptcy protection, while U.S. trustees employed by the Justice Department monitor cases to be sure companies and others comply with bankruptcy laws.”

As you can see, there are (at least) two types of BK trustees. Finally, the article notes that Justice is handling 10,000 BK cases filed this year alone. Since the 2005 BK “reform” bill was passed, the situation has just gotten more complicated.

We put reform in quotes because in our experience, laws passed to reform an older law just make things more complicated.

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About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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One Response to How the big boys deal with bankruptcies

  1. RD Pierini says:

    Your second sentence nailed “it” when you said the companies were actually law firms. Then you accurately placed quotes around “reform” when discussing bankruptcy reform. Gee, we have lawyers in Congress “reforming” bankruptcy laws. Do you think that lawyers may be the major beneficiary of this “reform”? We need to develop a system whereby the existing management team is not bonused for liquidating the company they helped to bankrupt. Further, that this “industry” is not controlled by attorneys. Solyndra is a classic example of what is wrong with the process. Given California’s high unemployment, it is difficult to beleive that we needed to pay out bonuses to keep existing employees.

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