Financial Mirror hosted article Copied&Pasted from Wikipedia
Bankruptcy laws
Foreword
Recently the good people at the Cypriot weekly the Financial Mirror run an article on the US bankruptcy laws and on Chapter 11 in particular. This is a stunning piece of work but in a bad way.
The author, Rakis Christoforou, references Wikipedia as his main and only source but goes further than that; he copied and pasted entire sections from the Wikipedia article on Chapter 11 without explicitly disclosing or mentioning it as such. It gets worse, the editorial team at the Financial Mirror failed to see that author had plagiarised (from Wikipedia no less) and allowed that article to fly.
As such the article is pure garbage and a waste of paper, the author inserts some personal thoughts of his own (at least I believe they are his own ) at the very end. Not only is the piece plagiarised but it also makes unwarranted assumptions over Chapter 11 as I discovered while sifting through the US Courts website .
Chapter 11 a primer
The US Code Title 11 is a set of laws that oversee bankruptcy procedures across they US and is divided into the following Chapters:
- Chapter 7 Liquidation
- Chapter 9 Municipal bankruptcy
- Chapter 11 Reorganisation under the bankruptcy code
- Chapter 12 Family Farmer Bankruptcy or Family Fisherman Bankruptcy
- Chapter 13 Individual Debt Adjustment
- Chapter 15 Ancillary and Other Cross-Border Cases
- SCRA Servicemembers’ Civil Relief Act
- SIPA Securities Investor Protection Act
In order to file for bankruptcy the applicant must apply to specialised bankruptcy courts that service their judicial district. As of 2011 there are 90 such courts across the USA.
Chapter 11 is available to legal entities and to individuals, however filing for bankruptcy under Chapter 11 involves legal and administrative fees that bankrupt individuals simply can’t afford, therefore for all purposes intended Chapter 11 applies mostly but not exclusively to businesses.
For businesses
Chapter 11 affords protection to debtor-businesses but the devil is in the details, depending on the nature of the business owners’ personal assets may or may not be exempt from the procedure. From the US Court bankruptcy laws
“The chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put the personal assets of the stockholders at risk other than the value of their investment in the company’s stock.”
“…a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors.”
“…in a partnership bankruptcy case (partnership as debtor), however, the partners’ personal assets may, in some cases, be used to pay creditors in the bankruptcy case or the partners, themselves, may be forced to file for bankruptcy protection.”
The author in the Financial Mirror made no such distinction erroneously assuming that all businesses are afforded the same level of protection. They are emphatically not! And this is where a Chapter 11 like law in Cyprus may be inapplicable. There are very few corporations (as defined by the US legislature) that would be eligible for Chapter 11 protection therefore a mere copy paste (the author’s favourite tool) of the Chapter as is would do very little to provide real protection in Cyprus.
Not all Chapter 11 applications are approved and not all viable businesses are safe from liquidation.
The 2nd egregious assumption the author makes is that once the business has applied for bankruptcy under Chapter 11 even when the debtor meets all legal demands and the business is viable, the business will be protected from liquidation.
The debtor has very little say in the proceedings save the restructuring plan he is forced to produce within 120 days in normal circumstances or the court can extend the deadline up to 18 months at the most. Creditors on the other hand are more involved with the process. Under the Chapter a Creditors Committee is formed to oversee the restructuring procedure. The court will force the debtor into liquidation if there is just cause that going forward with the restructuring plan, will result in significant loss for the creditors or the estate. The court does not take into account whether the business is viable the court only has the creditors’ best interests in mind because they are the ones who got the short end of the stick (so to say). If liquidation will produce greater value for the creditors than keeping the business alive then liquidation it is.
Cyprus?
Admittedly the US bankruptcy laws are a beautiful piece of legislature. Overall the laws in the USA do not punish failure and assist entrepreneurs to try again learning from their mistakes. They've been revised many times since they were 1st introduced in the mid 30's taking into consideration the Zeitgeist the spirit of the times, they are an evolutionary product not a monolithic unalterable block. That’s why they are successful and can’t be copied by another country, they were tailored after and customised for, the US business culture.
In order for Cyprus to enact on its own bankruptcy laws there must be some sense of normality in the business community and a careful examination of how Cypriot businesses operate over time. To enact on such a crucial piece of legislation now that Cyprus is under duress is nothing less than the proverbial shot on the foot. Half baked legislative actions produce unwanted side-effects that overshadow any positive outcomes and Cyprus has been there before MANY TIMES in its history.
I can sit here and list a host of reasons why Cyprus can’t copy and paste or even modify Chapter 11 any time soon but that would be an exaggeration, here’s just one example.
Assuming Cyprus embarks on copying Chapter 11. Financial caveats, such as small business debtor defined in the law as “with total noncontingent liquidated secured and unsecured debts of $2,343,300 or less.” are unknown to the republic because the data is simply not there.
Time to build something from the ground up for Cyprus, no Copy-Paste will cut the mustard.
