Grab the Fire Extinguisher: Comparing UK Schemes of Arrangement to U.S. Corporate Bankruptcy After Jevic

Abstract

Corporations overwhelmed with debt frequently turn to the courts for help to restructure their credit obligations, but some courts are more helpful than others. This is especially true when creditors cannot agree on a particular resolution, let alone when some creditors will not be paid at all. International corporations often have a choice of forum — and substantive insolvency law — based on their legal and physical presence in dozens or even hundreds of countries. The UK and U.S. offer different avenues for using insolvency law to restructure debts without total liquidation, and the American avenue has become more difficult to navigate thanks to the U.S. Supreme Court’s decision in Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017). In Jevic, the court found that the Bankruptcy Code does not allow parties to dismiss a bankruptcy case through a “structured dismissal” to pay creditors in a manner that violates the Code's absolute priority rule. This decision weakens the ability of corporate debtors and their creditors to structure a pre-plan settlement that satisfies some, but not all, creditors. The article starts with an overview of both insolvency systems and proceeds into a thorough comparison of features relevant to a corporation choosing between the two legal schemes. The article concludes by suggesting that, while each system has advantages over the other, a distressed (but not yet doomed) corporation choosing between the forums should opt for a more flexible UK "scheme of arrangement" rather than a Chapter 11 filing in U.S. Bankruptcy Court.