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When thinking about the 2008 financial crisis, few names stick out more than Lehman Brothers. The defunct bank’s Chapter 11 filing involved more than $600bn in assets and remains one of the largest US bankruptcies of all time. James Peck was the judge presiding over the bank’s Chapter 11 case, having been “randomly assigned” it.

Peck sat on the bankruptcy bench of the Southern District of New York until 2014, when he returned to private practice. In recent years, Peck has gone back to the judiciary – having been appointed as a judge on Singapore’s International Commercial Court — and continues to work on private engagements through his own firm James Peck ADR LLC.

Peck handled all kinds of transactions in different industries during his time as a corporate bankruptcy lawyer — essentially representing every conceivable type of interested party in the restructuring world during the 1990s and early 2000s.

9fin sat down with Peck to discuss his views on how the US restructuring market has developed in recent years, which non-US processes he’s following, and why Atari was one of the most surprising bankruptcy cases he presided over.

1. How have Chapter 11 restructurings and the US restructuring market evolved since your time on the bench?

The evolution started while I was on the bench and is tough to encapsulate in just a few sentences, but I believe there is a much greater emphasis now on pre-negotiated restructurings and restructurings that are designed to avoid bankruptcy court altogether. These bankruptcy avoidance tactics are liability management exercises (LMEs) intended to buy a company time by restructuring its balance sheet without fixing the underlying causes of financial distress, and these out of court deals represent a significant focus in the market right now.

So, I think both trends I've identified — the pre-negotiated/prepack filing and the liability management exercise — share somewhat similar objectives of minimizing time spent in bankruptcy court or totally side stepping the court process.

2. What’s the most recent piece of case law affecting US bankruptcies and why is it significant?

The Supreme Court's decision in Purdue Pharma, in which it determined that non-consensual third-party releases are impermissible as a matter of US bankruptcy law, has had a huge effect upon restructuring practice especially in mass tort cases and has led to thinking about alternative ways to approach restructurings.

The focus now is on ways to achieve similar restructuring outcomes using consensual releases at a time when there is some disagreement among the courts as to what constitutes consent. Parties are also thinking about how to use jurisdictions outside the US where non-consensual third-party releases are permitted.

We are still in the early stages of coping with this development. The Purdue decision makes it harder to achieve global peace in restructurings as the market had come to expect — an indication to me that there will be continued creative attempts to adjust to this new reality. It could lead to more cross border cases seeking to import releases into the United States by using chapter 15 or transactional structures that incentivize parties to give their consent.

3. What non-US restructuring processes are you following and are there any developments that have caught your attention?

I naturally tend to follow what's going on in Singapore and in London.

Singapore updated its restructuring law in 2018, having adopted the Insolvency, Restructuring and Dissolution Act. Around the same time, the UK enacted part 26A as part of the Corporate Insolvency and Governance Act 2020, which allowed for the cramdown of non-consenting classes — or cross-class cramdown.

I am paying attention to the development of English law around the cross-class cramdown power, as it may represent an opportunity for companies that might otherwise restructure under Chapter 11 in the United States to obtain comparable, but not identical outcomes in England.

And in Singapore, there is a prepack scheme regime that allows for prepacks to be confirmed on a very rapid and efficient schedule. In fact, I handled such a case myself as a judge: the case is called No Va Land. It was a Vietnamese real estate company that went through a prepack scheme last year in Singapore.

But those aren't the only jurisdictions. The restructuring market is always on the lookout for efficiency, cost effectiveness, predictability, and the ability to obtain recognition in appropriate commercial jurisdictions. I see a continuing process of evolution worldwide.  I just read that Malaysia is adopting the Model Law on Cross Border Insolvency.  Greater cooperation in the insolvency world is coming and seems inevitable to me.

4. US-style valuation fights seem to be on the rise in English restructurings. What advice would you give to English judges on how to best tackle the thorny problem of distressed valuations?

It's an extraordinarily difficult question because each case is different and valuation is so dependent on multiple factors. The court must evaluate the stature, credibility, and depth of analysis of the expert witnesses who provide guidance to the court when determining valuation questions.

I don't think there's one source of advice that I would have other than to pay very close attention to the bias that's baked into the analysis that supports a valuation report. Very frequently parties will have different goals in their valuation assessment: some are trying to produce a high estimate of value, while others want a relatively conservative or low-end judgment as to value. And one of them may be right, or neither may be right.  Often valuation is within a range between the two extremes.

The best advice I could offer, based upon my own experience having listened to competing well coached witnesses, is to pay close attention to the credibility of the witness. How effective is the witness in dealing with cross-examination questions?  And to trust your judgment. Because at the end of the day, valuation is more art than science and the art is in finding the sweet spot.

5. You’ve turned your hand to producing opinions on the likelihood that foreign restructuring processes would be recognised in the US. What features in foreign restructuring processes/jurisdictions do you think could make the US courts reluctant to provide recognition?

Speaking for myself, I don't think US courts should be reluctant to recognize procedurally fair restructurings that have been sanctioned or approved in foreign jurisdictions.

The general approach of US courts under chapter 15 is to liberally apply international comity such that a procedurally fair determination made in a foreign court — an English or Singaporean decision to reference two examples I'm familiar with — would almost always be recognized in the US.

The exception, I suppose, would be a restructuring that pushes the envelope to the point of breaking the envelope. This could be a restructuring where there are parties whose interests have been adversely affected by a process in a foreign jurisdiction that is subject to legitimate criticism — that the judge did not consider all the evidence or that the deal was structured in a manner that was manifestly prejudicial to a particular party and seemingly abusive and unjust.

But that's just a hypothetical. I have never seen examples of that in the UK or in Singapore — that's not to say they couldn't occur. I think each of these situations must be assessed on a case-by-case basis.

6. How can, and should, judges in different jurisdictions collaborate to better facilitate cross-border restructurings and insolvencies?

Judges actually do collaborate with one another, both in specific cases and more generally. I am a member of INSOL International and of the International Insolvency Institute (III) — judges participate in both of those organizations. INSOL has a judicial colloquium in which judges meet in private sessions to share experiences, to educate one another, and to allow judges from developing jurisdictions to benefit from the experiences of judges from more mature jurisdictions like the US or the UK.

This information sharing is a kind of informal education that helps to build confidence and trust across borders. The III has a judicial committee and I just attended a meeting in Sao Paulo a few weeks ago and judges from different jurisdictions shared information in much the same manner that I described with reference to the judicial colloquium of INSOL.

But there are also opportunities for specific cooperation in particular cases. A number of years ago, when I was on the bench, I had a cross-border case with Canada. The Canadian CCAA proceeding was in Montreal, while the US proceedings were in the Southern District of New York. I had court-to-court communication with a Superior Court justice in Montreal named Robert Mongeon.

Robert and I conferred during a particularly difficult confirmation hearing. We spoke with each other during the lunch break. We were having a joint hearing in which the two courts were connected by flat panel television screens and during the break between the morning session and the afternoon session we talked to each other.

I consider that to be totally appropriate in managing cases that were pending simultaneously in two separate jurisdictions. To similar effect, in the Nortel case, a joint trial was held with the District of Delaware and Justice Newbould in Toronto. It was a long and complicated trial — and it doesn't happen frequently. But when it does happen, it's a sign of how it's possible for courts to cooperate across borders in managing a complex dispute that needs to be resolved in a cooperative way.

7. With an increase of contentious restructurings going to court, how can practitioners resolve disputes ahead of filing for a formal restructuring process?

Well, there are several ways. Step one is bilateral negotiations with commercially reasonable people involved in those discussions. That's the traditional way to get to consensus. Throughout my career, when I was a lawyer and before I was a judge, that's what we did: we got together, often over a meal, and talked about issues and tried to come up with commercial solutions.

That doesn’t always work and sometimes the parties have conflicts that are very tough to resolve and that may lead to mediation, which I have a lot of experience with. I think mediation, certainly in the US, has become a standard practice to try to avoid conflict that otherwise would go to court or would get in the way of developing a pre-negotiated restructuring term sheet or a restructuring support agreement.

Another alternative is arbitration. But that's less likely because parties generally don't want to give up control. They can and sometimes do, but it requires a very discreet issue that parties are willing to turn over to an expert or a trusted third party who's viewed as completely neutral and balanced and then get an answer and move on from there.

Those are the standard techniques. There is another label I could put on something that isn't quite mediation and isn't arbitration, and is closer to a facilitation — if I can use that term — whereby a trusted individual is appointed to help bring a group to consensus. This could be in cases where parties want to avoid a formal mediation or arbitration, but lack the mutual trust required for effective bilateral negotiations. I have worked as a facilitator on three occasions recently, and each of these ended successfully.

8. There have been a few stories about lawyers being caught out by using AI to draft or assist in the drafting of documents and court submissions. What advice would you give to practitioners about how and when they should use AI to support their work?

It's a mistake to use an AI-generated document without treating it as a starting point to then be factchecked and fully researched. Practitioners need to protect against the risk of so-called hallucinations that are attributed to some AI programs, in which cases citations are literally made up out of thin air. It can be embarrassing or even lead to sanctions.

I suppose the main benefit that AI offers is a chance to save time and to generate language that could be used with appropriate editing, and follow-up research as part of judicial submissions to the court.

I have never done it and doubt I will ever do it. I am very old school – old school in the sense that I edit everything myself based upon my writing style. I don't write the way an AI program writes and believe that's a good thing. I think that there is a risk in being overly dependent on machine learning — expecting one word to follow another in a particular sentence — and in the process losing the personality and passion of the individual advocate.

I think advocacy is something that an AI program might be able to mimic, but truly outstanding advocacy is uniquely personal.

9. What was the most unique or unexpected asset listed in a bankruptcy case you presided over?

I'm going to hearken back to a case that was assigned to me during the time that I had Lehman Brothers: Atari.

Atari was a very famous name many years ago, when video games were in their infancy. Atari filed for Chapter 11 in 2013. One of the company’s goals was to maximize value by selling its intellectual property to the highest bidder. The assets being sold were the intellectual property rights associated with Atari's video games.

To my disappointment, but frankly much more to the disappointment of the creditors of Atari, those assets fetched very little value. It was an auction that was disappointing to everybody who participated in it. Part of what made it interesting was that Atari was at one time a household name. Everyone of a certain age knew and even had some affection for the brand.

I haven't looked back at the case in many years, but at the time it was interesting to think about what these iconic video games might be worth at auction. And it was frankly shocking, and maybe a sign of the times, that current software developers had essentially no interest in these old assets. The auction was a total failure.

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