Wanted: judges for Chapter 11 courts

The dreadful last couple of years for corporate America have thrown up an unexpected and unusual shortage – of bankruptcy judges.

In his annual report to the US Congress, Supreme Court Chief Justice William Rehnquist has highlighted a crisis that is threatening to clog up the US commercial courts.

Justice Rehnquist pointed out that the number of judges sitting in US bankruptcy courts has not increased for a decade. However, the number of applications to those courts has nearly doubled.

In 2002, a year in which giant corporations such as WorldCom, Kmart, Global Crossing, United Airlines, US Airlines and Conseco all filed for Chapter 11 bankruptcy in the aftermath of Enron's collapse, the average judge dealt with 4,777 cases. This compared with an average of 2,998 in 1992. Since then, the number of bankruptcies has increased by nearly three quarters.

Justice Rehnquist used his annual report to call on Congress to authorise re-inforcements to the legal army dealing with bankruptcies. "I urge the 108th Congress to act on all of the pending requests for new judgeships during its next session," he said. This would lead to the appointment of 24 new bankruptcy judges, together with extra appointments in the appeal courts and district courts.

Justice Rehnquist also called for an increase in judges' salaries to stop experienced law officers leaving to join private practices.

His intervention comes at a time when there is increasing pressure for reform of the Chapter 11 process. Under the system, the managers of a corporation that goes into Chapter 11 are allowed to remain in charge while they try to reorganise the company so that it can re-emerge from bankruptcy proceedings.

This practice has led to large payments, known as retention bonuses, being made to senior executives to stop them leaving the company. The high level of these payments has caused resentment, particularly at Enron, where it was claimed that the architects of the energy company's downfall were being rewarded for its failure.

Calls have been made for a new system, more like the one operating in the UK, to replace Chapter 11 with administrators appointed by the courts to run failed businesses.