Despite an 8% increase in new U.S. bankruptcy filings from 2009 to 2010, the pace has slowed from the 30% annual increases since 2006, according to the latest report from the Administrative Office of U.S. Courts. Although this may be good news for the general economy, BVWire asked attorney Daniel Perry (Milbank) what it may imply for business appraisers.
“It’s the big corporate filings that drive valuation work,” Perry says, “and lately we haven’t had the big Lehman Bros. type filings that we saw in 2008.” Instead, the trend he’s seeing involves sales of distressed assets through pre-negotiated or pre-packaged plans effected through Section 363 (“363 sales”) of the Bankruptcy Code. “These are bankruptcies in which the creditor constituencies agree ahead of time as to what to do with the assets, so there is little opportunity for disputes that would require a valuation,” Perry explains. If credit sources dry up again (as they did in 2008) then “we could see a lot more unplanned filings,” he adds. “These tend to breed valuation disputes because inevitably the senior creditors and the junior creditor classes will have a different view of value at the outset of the case.”
As a reminder, Perry notes that the U.S. Courts’ survey covers all bankruptcies, individual as well as corporate.