Appointing Chapter 11 Trustees in Reorganizations of Religious Institutions

Note — Volume 101, Issue 8

101 Va. L. Rev. 2225
Download PDF

Over the past decade, the bankruptcy filings of Roman Catholic dioceses have brought the previously underexamined possibility of church bankruptcies to the attention of scholars. At the same time, a large and growing number of less visible churches are resorting to chapter 11 reorganization, often as a last-ditch effort to keep faith communities together or to preserve ownership interests in the physical churches that serve as the anchors for those communities. However, the case law and scholarly literature treating the religious liberty implications of subjecting churches or other religious organizations to the provisions of the Bankruptcy Code remain limited in scope. This Note considers an important tool available to parties in interest in a chapter 11 reorganization: appointing a trustee to replace the existing management of a debtor. This mechanism allows for the replacement of bad actors in the leadership of a business so that the going concern value of the debtor’s enterprise can be maximized to the benefit of creditors. Given the corporate governance concerns that attend many church bankruptcies, this represents a powerful and useful tool for implementing more effective internal controls, building credibility with creditors, and effecting reorganizations.

However, when the business in question is a religious institution, the appointment of a trustee raises concerns relating to the religious liberty interests of the debtor. I conclude that these concerns should not bar the appointment of a trustee in the chapter 11 reorganization of a religious institution. In Part I, I will describe the causes of church bankruptcies and the functioning of the chapter 11 trustee as a potential remedy in those cases. In Part II, I will articulate the potential bases of religious liberty objections to such an appointment. In Part III, I will sketch the contours of how the scope of a trustee’s authority could be cabined so as to prevent infringing on the religious liberty interests of the debtor.

Click on a link below to access the full text of this article. These are third-party content providers and may require a separate subscription for access.

  Volume 101 / Issue 8  

Changing the Vocabulary of the Vagueness Doctrine

By Peter W. Low and Joel S. Johnson
101 Va. L. Rev. 2051

Measuring the Impact of Plausibility Pleading

By Alexander A. Reinert
101 Va. L. Rev. 2117

Insincere Rules

By Michael D. Gilbert
101 Va. L. Rev. 2185

Appointing Chapter 11 Trustees in Reorganizations of Religious Institutions

By Colin M. Downes
101 Va. L. Rev. 2225