Zywicki Returns to Hill for House Testimony

Professor Todd Zywicki returned to Capitol Hill this week to provide testimony to the House Judiciary Subcommittee on Commercial and Administrative Law in its hearing on Circuit City Unplugged: Why did Chapter 11 Fail to Save 34,000 jobs?

Debate at the March 11 hearing centered around whether a 2005 change to the bankruptcy law contributes to the bankruptcies of large retailers like Circuit City by hampering their abilities to raise debt financing or find buyers for their operations. The 2005 change shortened the length of time companies have to decide whether to maintain leases with landlords to 210 days.

Zywicki termed Circuit City's demise "the right thing at the right time," arguing that bad management and other factors contibuted to its fall and would not have been offset by bankruptcy reform. Zywicki also maintained that allowing major retailers to remain in malls while under bankruptcy protection can have an adverse effect on other occupants of those malls, who will not regain solid footing again until a new anchor store replaces the ailing one.

Impact of Chapter 11 Change on Retailers Debated, The Washington Post, March 12, 2009. By V. Dion Haynes.

"Chapter 11 bankruptcy filings nearly doubled to 9,272 in 2008 from 5,736 in 2007, according to the American Bankruptcy Institute. Last year, 27 major retailers filed for bankruptcy protection, the most since 2001, experts said. They include Wickes Furniture, Sharper Image and Linens 'n Things.

"So far, eight major retailers -- including Ritz Camera -- have filed for bankruptcy protection this year. Experts say they expect this year's bankruptcies to surpass last year's totals.

"Rep. Trent Franks (R-Ariz.), a subcommittee member, asked the experts whether the government should use money from the Treasury Department's Troubled Assets Relief Program to help companies in bankruptcy protection obtain debt financing.

"Daniel B. Hurwitz, president and chief operating officer of Developers Diversified Realty, which held numerous Circuit City leases, said that plan would be 'throwing good money after bad. That would force the government to make a decision on who is and isn't a good merchant. I don't think that's a position the government should be in.'

"But Zywicki disagreed, saying a government bailout could help troubled companies 'get over the hump.'"

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