Can complex contracts effectively replace bankruptcy principles? : why interpretation matters Articles uri icon

publication date

  • October 2018

start page

  • 417

end page

  • 488

issue

  • 4

volume

  • 92

international standard serial number (ISSN)

  • 0027-9048

abstract

  • In bankruptcy, the administration and liquidation of an insolvent estate is carried out by a trustee or administrator under court supervision. Parties in a debt transaction may wish to do away with the strictures of a bankruptcy proceeding, which are time consuming, costly, and sometimes unpredictable. Yet they cannot do away with the need to appoint an agent or trustee to administer their collective interests, which comes with the corresponding need to delineate a set of powers, functions, and duties of that trustee. Yet no matter how detailed the transactional documents are, there may be unanticipated circumstances that the parties did not address in their contract. And when conflicts arise, especially inter-creditor conflicts, most trustees are risk adverse enough to seek guidance from the court before acting unilaterally. Thus, no matter how hard the parties attempt to insulate themselves from court supervision, they will often end up in a courtroom fighting about the intended meaning of their transactional documents. This article explores the inherent tendency of courts to address gaps or conflicts in contract provisions with underlying default or background principles drawn from debtor-creditor law, trust law, and implied duties imposed by common law when dealing with oppressive majority control. These tendencies are relevant for parties who may more effectively anticipate and address them in their documentation, and lawmakers who may gain better insight into the interplay between contract and consent and legal principles in bankruptcy law.

keywords

  • collective action clauses; remote transactions; choice; law; limits