Going Concerns and Environmental Concerns : Mitigating Climate Change Through Bankruptcy Reform

This article examines how legislative reforms to the Bankruptcy Code could mitigate the effects of climate change, speed the adoption of renewable energy, and contribute to U.S. compliance with the Paris Agreement of 2015. It analyzes the benefits derived by the fossil fuel industry from Chapter 11, which allows extractive firms to survive boom-and-bust cycles caused by volatile oil and gas prices. Insolvent polluters are preserved as going concerns during price collapses, only to resume and expand production as prices recover.This article proposes novel legislative reforms to the Bankruptcy Code that would require insolvent fossil fuel producers to liquidate under Chapter 7 rather than reorganize under Chapter 11. These proposed reforms would also mandate the appointment of an environmental trustee and the consideration of the public interest during liquidation proceedings. The public interest would weigh in favor of reserving certain assets for climate remediation rather than selling them to other extractive firms on behalf of creditors.Anticipating the objection that climate policy is a non-bankruptcy matter that should accordingly be resolved outside of bankruptcy, I explore models for these proposals in existing insolvency law: the Securities Investor Protection Act, the history of reorganizations in the railroad industry, and the administration of mass tort cases. Under SIPA, stockbrokers are required to liquidate rather than reorganize to protect the investing public. In railroad bankruptcies, special trustees and judicial consideration of the public interest have long been required, primarily due to the historical significance of railroads to the U.S. economy. And the bankruptcy system has converted entities that caused mass torts into those that mitigate past harms. The special treatment of critical industries in bankruptcy to advance key societal goals, as proposed here, is thus consistent with existing law. This article concludes that bankruptcy reform has a role to play in addressing the climate emergency