Symposium, Creditors' Rights, Foreword
Charles Seligson 0 1
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1 Charles Seligson , Symposium, Creditors' Rights, Foreword, 34 Fordham L. Rev. 383 (1966). Available at:
The Fordham Law Review has rendered a splendid service to the
legal profession in devoting its third issue to the subject of bankruptcy.
This area of the law has become increasingly important to the business
community, despite the generally prosperous state of the economy. In
dealing with their respective subjects, the five major contributors, all
able and experienced, have taken a pragmatic approach which has
emphasized the practical aspects of the problems facing the practitioner.
These contributors have generously drawn upon their expertise to alert
the unwary to the host of pitfalls usually encountered in the handling
of bankruptcy cases. At the same time, appropriate regard has been
shown for the conceptual and historical development of the theories
affording solutions to the many problems.
In keeping with the theme of the symposium, Referee Rudin in his
article, "Fees and Allowances to Attorneys in Bankruptcy and Chapter XI
Proceedings," discusses the factors which are relevant in the
determination of the quantum of compensation to be awarded to the applicant.
As Referee Rudin points out, the problem generally is not to whom
compensation should be awarded, since that is clearly defined in the
Bankruptcy Act, especially in ordinary bankruptcy and cases under
Chapter XI. The important question is "how much," and, as the referee
properly notes, the decided cases emphasize that a spirit of economy
must prevail in the award of compensation. But as he acknowledges,
economy must not foreclose just compensation. Inadequate fees
discourage participation by able and experienced attorneys and thus tend
to defeat the desirable objective of realizing the maximum possible for
distribution to creditors. Referee Rudin has done well to point out that
"time spent" is but one of several factors to be weighed in determining
the amount of the fee. As he states, accomplishments and benefits to the
estate should be the controlling considerations. In the last analysis, the
Professor of Law, New York University School of Law; Chairman, Executive
Committee of the National Bankruptcy Conference; Co-editor of numerous volumes of Collier
on Bankruptcy; Member, United States Judicial Conference on Bankruptcy Rules.
fixing of fees calls for the exercise of informed judgment and a wise
discretion, and the determination of the referee or judge in this respect
should not be disturbed unless there has been an abuse of discretion
or reliance has been placed upon improper standards.
Messrs. Krause and Kapiloff have also taken a pragmatic approach
in their consideration of "the relevant statutory, administrative, and
judicial developments relating to the taxable income of bankrupt estates."
This article, which deals with problems not fully explored by
commentators, should be of inestimable value to the persons charged with
administration of bankrupt estates. Inequities arising because of the lack
of any clear distinction between the tax obligations of a trustee for a
corporate bankrupt and one for an individual bankruptcy are aptly
illustrated. An illuminating treatment is given to the question of taxable
income during the administration of the bankrupt estate, which the
authors point out "isfraught with social and economic considerations."
Although existing law on the subject contains many gaps, the article is
tremendously helpful in advising the practitioner of which areas have
been settled and which have not.
Chapter XI was designed for the expeditious and economic
rehabilitation of corporations as well as individuals. Chapter X, on the other hand,
is geared to the reorganization of corporations which cannot obtain
adequate relief under Chapter XI. There is no clear-cut statutory line of
separation between Chapters X and XI, and the courts have been obliged
to set up guidelines which frequently present difficulties in application.
Recent decisions indicate a greater liberality toward the acceptability of
Chapter XI petitions, in contrast with the earlier tendency to dismiss
such petitions on the ground that the more stringent regulations of a
Chapter X proceeding would better suit the debtor and its needs. This
recent trend, its impact and probable future course are the subject of
an excellent discussion by Professor Weintraub and Mr. Levin in the
third paper of the symposium. The leading cases are astutely dissected
to extract from each the factual circumstances which influenced the
court in its choice of the type of proceeding best suited to afford adequate
relief to the debtor and creditor alike. The need for an adjustment of
the public debt, conclude the writers, for new management, for an
accounting by management for misdeeds, or for the protection of
widespread public stockholders, even where there is no public debt, are
factors calling for the detailed regulatory provisions found in Chapter X.
Conversely, if there is need for the continuation of old management and
no complex debt structure, and the plan is one to readjust only claims of
private trade creditors, even where there is some public debt, the
simplified machinery of Chapter XI may be more appropriate. Certainly the
task of the lawyer in choosing the suitable chapter will be made easier
by this article.
The symposium includes Referee Hiller's observations on the security
aspects of chattel leases in bankruptcy. With his usual thoroughness,
he explores the situations in which the long-term lease departs "from the
conventional provisions that characterize bona fide lease transactions"
and grants "to the lessee rights or options to acquire ownership of the
leased property." These situations quite frequently present the court
with a problem as to whether the lease has undergone transition from a
lease to a sale. If the lease is in fact a security transaction, the lessor
is an unsecured creditor, for there is no filed security agreement which is
enforceable against the trustee. Clearly, the criteria by which the courts
distinguish a bona fide chattel lease from a camouflaged security
agreement are of extreme importance to the practicing attorney, who should
welcome the help supplied by Referee Hiller.
The rights and status of sureties in bankruptcy cases of contractors,
a subject of ever increasing importance in the administration of
bankrupt estates, are admirably covered by Harry Gleick, a member of the
M11issouri Bar, in his treatise. As he notes, "with the increasing number
of governmental contracts, litigation can only increase." Bankruptcy
trustees, as Ir. Gleick aptly observes, "have been drawn into litigation
on occasions where it was ascertained ultimately that nothing was due
the bankrupt estates." Mr. Gleick makes the telling point that the
surety's right of subrogation is rather ill-defined under the Bankruptcy
Act and, with his customary skill and perception, he discusses priorities
between the surety and the trustee and analyzes the rights of the surety
under assignment. Concluding with a brief but pointed comment on the
trustee's injunctive remedy, Mr. Gleick re-emphasizes the urgency of
evolving "a theory supporting the concept of segregation.., upon which
all can agree."
The intensive treatment given to the problems of one specific sector
of the law constitutes true service to the professionals who face these
problems. Those who read this symposium will be more than amply
rewarded. The attorneys practicing in the field of bankruptcy are greatly
indebted to the Fordham Law Review and to the contributors to the
symposium, including the student scholars who labored so nobly and with
excellence, for making possible this rich and varied presentation.