Why Are We Now Up Against Wall?
Some observations from Jeffrey Broker:
As bankruptcy and insolvency lawyers, we are often called upon to evaluate a difficult set of facts which could have been radically different had the client acted sooner. We are not psychiatrists, psychologists or persons schooled in the science of understanding why people do what they do - we as lawyers generally take on situations after people have done whatever it was they did. One thing is crystal clear: clients who act decisively by seeking legal advice when financial problems are either on the horizon or otherwise visible are always substantially far better off than those clients who wait until the problem is standing on the doorstep (or has already seized the house.) A few examples follow.
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Strategies For Returning To Sunlight
Many entrepreneurs and real estate developers who thrived during the dynamic 1980’s saw the fruits of their labors evaporate during the disastrous recession that struck California in early 1990’s. For many, this “hour of darkness” was further compounded by the subsequent torrent of litigation spawned by disgruntled investors, unpaid banks, and opportunistic class action attorneys seeking redress. Although the majority of Orange County’s entrepreneurs have regained their feet and are once again forging ahead, for others the road is more difficult. Their recovery is being impeded, and in some instances blocked, by money judgments obtained by creditors, investors and others in years past.
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In Bankruptcy proceedings, courts will on occasion combine the assets and liabilities of separate legal entities which can involve non-bankruptcy Debtor entities. Bankruptcy courts have granted such relief under the doctrine of “substantive consolidation.” Substantive consolidation results in a combining of the assets of, and the claims against, two or more entities. Such a ruling has the effect of (i) allowing the liabilities of both entities to be satisfied from the resulting common fund, (ii) eliminating inter-entity claims and (iii) combining the creditors of the consolidated companies for purposes of voting on a reorganization plan. The consolidated assets form a single fund from which the claims against all of the consolidated entities are satisfied. The standards for invoking the remedy of substantive consolidation have evolved through case law as opposed to Congressional legislation.
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