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William H. Schorling, a shareholder and Executive Committee member of the Bankruptcy and Creditors' Rights Section at Buchanan Ingersoll & Rooney's Philadelphia office, was quoted in a June 9, 2009, article published by The Distressed Debt Report. The article, titled "Special Purpose Entities' Bid For Freedom," discussed how General Growth Properties (GGP) recently sent shock waves through the securitized debt world when it dragged most of the special purposed entities (SPEs) that financed its shopping mall empire into bankruptcy along with the parent company.

According to the article, "Outraged creditors are fighting back. … A court hearing scheduled for June 17 may determine whether their efforts to remove certain SPEs from the bankruptcy proceedings will succeed."

One such creditor, FRM Funding Co., in a May 29 motion, claimed that the "bankruptcy filing related to Fox River Mall in Appleton, Wis., which generated $9 million in free cash flow in 2008 after meeting debt service payments and operating expenses, was never properly authorized," explained the article. However, "FRM did not challenge the independent directors' vote in favor of the bankruptcy filing."

Schorling weighed in on the issue, explaining that Delaware law charges directors with a fiduciary duty to shareholders, not creditors. "All the fancy language that says independent directors of an SPE owe an obligation to some third party?" he said. "I am sure that works."

The article went on to say that "Schorling, who never faced the decision to file for bankruptcy when he was the independent director of an SPE unrelated to GGP, said that the duty to the equity owner comes foremost in his mind, especially if the SPE is solvent."

Schorling said that public policy considerations may be the best argument of all. "The courts ought not to upset understanding and practice in the commercial markets," he said. "It will raise borrowing costs throughout the industry."