Thursday, August 22, 2013

"There's nothing in Chapter 9 that enables creditors to force an asset sale." (UPDATED)

Georgetown bankruptcy professor Adam Levitin on whether creditors can force the liquidation of the DIA collection.  He expands upon it at, where he makes three central points.

First, he argues that the collection "should be off-limits for the city’s creditors. If Detroit is to be rebuilt, it needs a cultural base, not just an economic base. ... Proximity to cultural treasures is ... part of what makes living in a city attractive and part of the package Detroit needs to attract businesses and tourism.  Letting creditors liquidate the city’s cultural patrimony would doom Detroit to a stillborn restructuring, the ultimate in penny-wise, pound-foolish decisions."

Second, he points out that, unlike with a personal- or corporate-bankruptcy, "bankruptcy law has no provision that requires cities to sell their assets to satisfy creditors."  So Detroit cannot be forced to sell the art.  If the Michigan Legislature passes legislation affirming the attorney general's "non-binding opinion" that the art is off limits to creditors, then it cannot be sold in bankruptcy.  Period.

And third -- and this, I think, is really a crucial point -- while the "creditors may complain that it is unfair for the city to hold on to a valuable asset while not paying them in full," the truth is that "liquidating the art collection would represent a giant windfall for creditors. No creditor ever relied on being able to seize the DIA collection when extending credit to the city."

Read the whole thing.

UPDATE:  Sergio Muñoz Sarmiento has some questions in response to Levitin's piece.