The dearth of business activity on the traditional day of rest makes Sunday an ideal time to declare insolvency. Bankruptcy petitions are time-stamped to the minute, instantly dividing a failed company's dealings into pre-bankruptcy transactions and post-bankruptcy transactions. Since little business is conducted on Sundays, odds are a company won't be in the midst of a transaction when it formally goes belly up, a situation that could cause quibbling with a creditor over whether a deal was pre- or post-bankruptcy. A filer typically wants to have as many deals as possible labeled "pre-bankruptcy," since it may wind up paying only pennies on the dollar to those unfortunate creditors.
Sunday filings are also designed to lessen media scrutiny of a collapse, because Monday newspaper business sections are often geared toward "soft" features on publishing or advertising rather than market-driven news. This strategy is akin to the old political trick of making embarrassing announcements at 4:59 p.m. on Friday, right before the Beltway press corps flees to the suburbs for the weekend. But in the age of CNBC and Yahoo! News, a Sunday filing scarcely lessens the public-relations blow.
But the courts are closed on Sunday, right? In theory, the courts are always open for business. Bankrupt companies need to locate a clerk or judge willing to accept their documents on a weekend, an arrangement that usually requires a few days notice and a little clout. About a third of federal bankruptcy courts now accept electronic filings, including the ever-popular Southern District of New York, where Enron, WorldCom, Adelphia, and Global Crossing all went bust.
Explainer thanks Lynn LoPucki of the UCLALawSchool, Ray Warner of the University of Missouri-Kansas City School of Law, and Todd Zywicki of the GeorgeMasonUniversitySchool of Law. Thanks to Martin Henner of Eugene, Ore., for asking the question.