DEVELOPMENTS IN BANKING AND FINANCIAL LAW: 2005 I. BUSINESS BANKRUPTCIES........................................2 II. AIRLINE BANKRUPTCIES.........................................11 III. HEDGE FUND INDUSTRY .........................................21 IV. SARBANES-OXLEY ACT ...........................................32 V. GRAMM-LEACH-BLILEY ACT .................................42 VI. BASEL II........................................................................50 VII. DOMESTIC MERGERS & ACQUISITIONS...............71 VIII. INTERNATIONAL MERGERS & ACQUISITIONS...81 IX. NYSE MERGER AND IPO...........................................90 X. WAL-MART’S INDUSTRIAL LOAN COMPANY...101 XI. CONSUMER PRIVACY LAW ...................................109 XII. SECURITY WITH ONLINE BANKING....................118 XIII. COMBATING IDENTITY THEFT.............................127 XIV. ANTI-MONEY LAUNDERING .................................137 XV. GSE FRAUD................................................................146 XVI. DOMESTIC AND INTERNATIONAL TAXATION .155 XVII. KETRA: TAX RELIEF & HURRICANE KATRINA.166 XVIII. SECURITIES OFFERING REFORM .........................175 XIX. SOFT DOLLAR PRACTICES.....................................184 XX. INSIDER TRADING ...................................................195 XXI. ANTIFRAUD...............................................................205 XXII. FDIC.............................................................................215 XXIII. CORPORATE GOVERNANCE..................................224 2 ANNUAL REVIEW OF BANKING & FINANCIAL LAW [Vol. 25: 1 I. BUSINESS BANKRUPTCIES The Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) became generally effective on October 17, 2005.1 This article examines selected provisions of the BAPCPA that amend sections of the Bankruptcy Code of considerable import to business bankruptcies. Viewed collectively, these provisions expand the rights of creditors and diminish the discretion afforded to bankruptcy courts in business reorganizations under Chapter 11. This article also examines provisions of the BAPCPA that are intended to minimize cost and delay in Chapter 11 cases involving small business debtors.2 A. Overview of Small Business Amendments The 1994 amendments to the Bankruptcy Code created the National Bankruptcy Review Commission (the “Commission”).3 The Commission was a response to a dramatic increase in proposed bankruptcy legislation during the 1980s and early 1990s.4 In the Commission’s first formal report, it concluded that Chapter 11 “was too costly and cumbersome for the small cases that represent the vast majority of Chapter 11 filings.”5 It attributed the unnecessary costs and delays it observed to the fact that it was not cost effective for creditors to closely monitor a small business debtor and actively 6 participate in its reorganization. 1 Pub. L. No. 109-8, 119 Stat. 23 (2005). All future references will be to the amended provisions of the Bankruptcy Code. 2 A debtor is a small business debtor if: “(1) the debtor is engaged in commercial or business activities, including an affiliate of the debtor that is also in bankruptcy, but excluding any debtor whose primary activity is the business of owning or operating real estate; (2) the debtor has noncontingent, liquidated, secured, and unsecured debts that, in the aggregate, do not exceed $ 2 million on the date of the petition or order for relief, excluding debts owed to affiliates or insiders of the debtor; and (3) the United States trustee has not appointed a committee of unsecured creditors under section 1102 or the court has determined that the creditors' committee is not sufficiently active and representative to provide effective oversight of the debtor.” Alan N. Resnick & Henry J. Sommer, Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: A Section-by-Section Analysis, in 1 Collier on Bankruptcy (15th Ed. 2005). 3 See Thomas E. Carlson & Jennifer Frasier Hayes, The Small Business Provisions of the 2005 Bankruptcy Amendments, 79 AM. BANKR. L.J. 645, 646 (2005). 4 See id. 5 Id. at 650. 6 See id. 2006] DEVELOPMENTS IN BANKING & FINANCIAL LAW: 2005 3 The BAPCPA responds to the Commission’s observations in several noteworthy ways. The act places the responsibility for monitoring small business debtors primarily on the United States Trustee, who must interview the debtor prior to the first creditors’ meeting.7 The U.S. Trustee must also evaluate the ability of the debtor to confirm a reorganization plan, and must move to have the case dismissed or transferred to Chapter 7 in the event that the Trustee finds “material grounds for any relief under Section 1112 of Title 11.”8 The amended Code also requires small business debtors to submit periodic financial reports and allows the U.S. Trustee to visit the business premises of a debtor to inspect its books and records.9 In addition, the amended Code provides that the automatic stay created under Section 362 of Title 11 will not be granted to small business debtors that are serial filers.10 Further, treatment as a small business debtor is no longer elective under the amended code.11 Accordingly, the small business amendments reflect the view that “the benefit of reducing cost and delay in a large number of cases outweighs the cost of occasionally denying a viable debtor the ability to reorganize.”12 B. Reorganization Plans A debtor that files for bankruptcy under Chapter 11 may submit a reorganization plan to the bankruptcy court at any point during its case.13 This right of submission is exclusive to the debtor during the first 120 days after the bankruptcy court issues an order of relief.14 If the debtor elects not to submit a reorganization plan during the “exclusivity period”, such a plan may be submitted by “any party in interest.”15 The right to submit a reorganization plan is 7 28 U.S.C. § 586(7)(a) (2005). 8 Id. §§ 586(7)(c), (8). 9 Id. §§ 308(b), 586(7)(b). 10 Id. § 362 (n)(1) (refusing to extend the automatic stay to a debtor that: (1) is also a debtor in another small business case pending when the petition is filed, (2) was a debtor in a small business cased dismissed within the past two years, or (3) was a debtor in a small business case in which a plan was confirmed in the past two years). 11 See Carlson & Hayes, supra note 3, at 653. 12 Id. at 648. 13 11 U.S.C. § 1121(a) (2005). 14 Id. § 1121(b). 15 Id. § 1121(c) (defining a “party in interest” as “the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee”). 4 ANNUAL REVIEW OF BANKING & FINANCIAL LAW [Vol. 25: 1 also extended to “any party in interest” if a debtor’s plan has not been accepted by “each class of claims or interests impaired under the plan” within 180 days of the issuance of bankruptcy court’s order of relief.16 A debtor can petition the bankruptcy court to extend the 120- day exclusivity period for filing a plan or the 180-day period to obtain acceptances.17 The debtor must demonstrate “cause” for the extension.18 Prior to the 2005 amendments, a bankruptcy court could extend either the submission or acceptance period indefinitely if it determined that cause for the extension was present.19 Many bankruptcy courts interpreted the cause requirement liberally, often extending the exclusivity period throughout the duration of a debtor’s case.20 The BAPCPA places significant limitations on the continuation of the submission and acceptance periods.21 The amended code retains the cause requirement, but prohibits extension of the 120-day exclusivity period beyond eighteen months after the date of the court’s order of relief.22 In addition, the 180-day acceptance period may not be extended beyond twenty months after issuance of the court’s order.23 These restrictions increase the leverage of creditors in Chapter 11 cases and are particularly 16 Id. § 1121 (c)(3). 17 See id. § 1121 (d)(1). 18 Id.; See In re Express One Int'l, Inc., 194 B.R. 98, 100 (Bankr. E.D. Tex. 1996) (While the Code does not define “cause,” the court offered nine factors relevant to its existence. These factors included: “(a) the size and complexity of the case; (b) the necessity of sufficient time to permit the debtor to negotiate a plan of reorganization and prepare adequate information; (c) the existence of good faith progress toward reorganization; (d) the fact that the debtor is paying its bills as they become due; (e) whether the debtor has demonstrated reasonable prospects for filing a viable plan; (f) whether the debtor has made progress in negotiations with its creditors; (g) the amount of time which has elapsed in the case; (h) whether the debtor is seeking an extension of exclusivity in order to pressure creditors to submit to the debtor's reorganization demands; and (i) whether an unresolved contingency exists.” 19 See Lynn M. Lopucki, The Trouble With Chapter 11, 1993 WIS. L. REV. 729, 753 (1993). 20 See id. at 753-56 (finding that in seventy-nine percent of cases studied, the exclusivity period was continued throughout the case; but see Hon. Samuel L. Bufford, Chapter 11 Case Management and Delay Reduction: An Empirical Study, 4 AM. BANKR. INST. L. REV 85, 98 (1996) (finding that the exclusivity period was only extended in two percent of cases studied). 21 11 U.S.C. § 1121(d)(2) (2005). 22 Id. 23 Id. 2006] DEVELOPMENTS IN BANKING & FINANCIAL LAW: 2005 5 threatening to large corporations involved in complex reorganizations that may be unable to submit an acceptable plan