Vol 3 (2006) - Issue 1

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The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) – A Primer on Those Changes Affecting Business Bankruptcies

On April 20, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “BAPCPA”) became law in the United States.2 In many respects, the BAPCPA represents the most significant revisions to the United States Bankruptcy Code (the “Bankruptcy Code”) since its enactment in 1978. This article provides a brief overview of the BAPCPA’s most significant provisions affecting business bankruptcies.

Employment of Investment Bankers

Under section 327(a) of the Bankruptcy Code, a debtor must obtain approval from the bankruptcy court to retain bankruptcy professionals. Under pre-BAPCPA law, typically, a debtor’s prepetition investment banker could not be retained by a debtor because it did not qualify as a “disinterested person” (a prerequisite) because the statutory definition of “disinterested person” excluded an investment banker for any of the debtor’s outstanding securities or an investment banker for any security of the debtor within three years of the debtor’s bankruptcy filing. As a result, many of the large investment banks were unable to provide investment banking or financial advisory services to their clients that were in bankruptcy.
The BAPCPA eliminates these restrictions on the debtor’s employment of its prepetition investment bankers. Gone too is the outright prohibition under prior law against retaining someone who, within the two years prior to the debtor’s bankruptcy filing, was a director, officer or employee of such investment banker. Under the BAPCPA, the debtor’s prepetition investment banker, or a director, officer or employee 1 The views expressed in this article are those of the authors and not necessarily those of Paul, Weiss, Rifkind, Wharton & Garrison LLP.
2 With certain exceptions, BAPCPA’s changes apply to bankruptcy cases filed on and after October 17, 2005.
3 Although this article summarizes certain important revisions to the Bankruptcy Code, it does not discuss all of BAPCPA’s provisions. Also, this article does not cover the new chapter 15 to the Bankruptcy Code (titled “Ancillary And Other Cross-Border Cases”) as we understand that this subject has already been covered in other articles that have appeared recently in International Corporate Rescue.
4 This is the same standard that applies to other professional persons whom the debtor seeks to employ.of such investment banker, may be retained so long as their interests are not materially adverse to the interests of the debtor, its estate or of any class of the debtor’s creditors or equity security holders.