Boyd's Legacy and Blackstone's Ghost
Robert K. Rasmussen
USC Gould School of Law
Douglas G. Baird
University of Chicago Law School
December 15, 1999
Vanderbilt Law Joe C. Davis Research Paper No. 99-8; and University of Chicago Law School John M. Olin Law & Economics Working Paper No. 94
Section 1129(b) of the Bankruptcy Code gives each class of unsecured claims the right to insist that a reorganization plan be "fair and equitable" and to prevent those junior to them from receiving "property" on account of their old interests. The Bankruptcy Code is often said to embrace a rule of absolute priority, but if it does so, it is only through these restrictions. Hence, the meaning of the words "fair and equitable" and "property" is the terrain on which priority battles are contested. One must choose among different methods of statutory interpretation. One can derive priority rules by examining the judicial evolution of the words "fair and equitable" before they were incorporated into the 1978 Bankruptcy Reform Act. Alternatively, one can look to the word "property," and derive priority rules by trying to define this word. Opinions in the most recent Supreme Court case on this issue, 203 N. LaSalle, exemplify these competing approaches. Using these opinions as its starting point, this paper explores the way in which priority rules in bankruptcy have evolved over time and shows how the absolute priority rule is harder to derive from the statute and hence more contingent, positively and normatively, than commonly supposed.
Number of Pages in PDF File: 72
JEL Classification: K0, G3
Date posted: February 15, 2000
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