THE NRA’S CHAPTER 11:
NOT THE END, BUT A NEW BEGINNING
BY PROF. ANTHONY MICHAEL SABINO
Defenders of the Second Amendment were distressed to learn that the National Rifle Association recently filed for bankruptcy protection. So was I, but once I applied the knowledge gained as law clerk to a New Jersey bankruptcy judge, and over 30 years of experience as a practitioner and professor of law, I came to realize that the NRA’s case is not the end, but a new beginning. A brief examination of the more salient points of Chapter 11 demonstrates why this is true.
Chapter 11 — Reorganizing, not Liquidating
The U.S. Supreme Court has often declared that the purpose of Chapter 11 is to preserve an entity, and prevent its demise, by permitting it to reorganize, not liquidate (liquidation falls under Chapter 7). In a Chapter 11 case, there is no bankruptcy trustee; rather, pursuant to Bankruptcy Code Sections 1107 and 1108, the entity continues as a “debtor in possession,” to wit, in possession of its assets, and authorized to operate its business.
Under this statutory regime, numerous private entities (major airlines, Macy’s, to name a few) successfully rehabilitated their finances, restructured their businesses, and eventually left the bankruptcy court stronger than when they entered. Assuredly, the NRA shall do the same.
Chapter 11 Stops Litigation
A key component of every bankruptcy is Code Section 362, the “automatic stay,” which provides that all litigation against the debtor must cease the moment the case is filed. Halting all litigation, especially harassing lawsuits brought by various state attorneys general, was clearly a major motivation behind the NRA’s Chapter 11.
But the automatic stay exempts litigation brought by a government agency exercising its “police or regulatory power.” This will be a key point of contention in the NRA’s Chapter 11. No doubt hostile state attorneys general will allege that their lawsuits fall within this exception, and therefore they are entitled to continue to prosecute. Only time will tell which side shall prevail on this pivotal issue.
A Fresh Start
The goal of every Chapter 11 is the consummation of a “plan of reorganization,” simply put, a plan for the entity to pay its renegotiated debts, and then recommence normal operations. Any Chapter 11 plan must first be voted upon by creditors, and then, if accepted by a majority of them, “confirmed” by the bankruptcy judge in a final step of judicial approval.
There is no reason why the NRA cannot navigate this process, and emerge from Chapter 11 a financially sound, better managed, and even more robust organization, just as countless others have. And so, we are more than justified in viewing the NRA’s Chapter 11 as not an end, but as a new beginning.
Prof. Anthony Michael Sabino, partner, Sabino & Sabino, P.C., is also a Professor of Law, Tobin College of Business, St. John’s University. He began his career as judicial law clerk to the late Hon. D. Joseph DeVito,
United States Bankruptcy Court for the District of New Jersey, presiding in Newark.
ANJRPC MAY–JUNE 2021