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The Costs of Chapter 11 in Context: American and Dutch Business Bankruptcy

Oscar Couwenberg
University of Groningen - Faculty of Law - Department of Law and Economics

Stephen J. Lubben
Seton Hall University - School of Law


October 19, 2009

Seton Hall Public Law Research Paper No. 1491351

Abstract:     
In this paper we adopt a new approach to the issue and contextualize the cost of chapter 11 by comparison to the costs of business bankruptcy in the Netherlands. Using unique data-sets that each author has developed in connection with other projects, we match a group of comparable cases from each jurisdiction. The results not only contextualize chapter 11 by reference to a comparable international economy, but also provide important comparative insights.

Most importantly, we find that "law matters." In particular, because the two jurisdictions consider the cost of corporate reorganization in different ways - chapter 11 includes almost all professional costs incurred during the case to be chapter 11 costs, whereas the Netherlands considers a narrower range of professionals - the difference in jurisdictions is initially the most important factor in explaining the cost of reorganization. We then account for these legal distinctions, and find that economic factors like the size of the debtor and the degree to which the firm's debts are secured explain most of the cost of corporate bankruptcy - irrespective of jurisdiction.

Keywords: chapter 11, bankruptcy costs, direct costs, financial distress, Netherlands

JEL Classifications: G33, G44, K22, K29, K41

Working Paper Series

Date posted: October 20, 2009 ; Last revised: November 18, 2009

Suggested Citation

Couwenberg, Oscar and Lubben, Stephen J., The Costs of Chapter 11 in Context: American and Dutch Business Bankruptcy (October 19, 2009). Seton Hall Public Law Research Paper No. 1491351. Available at SSRN: http://ssrn.com/abstract=1491351


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Contact Information

Stephen J. Lubben (Contact Author)
Seton Hall University - School of Law ( email )
One Newark Center
Newark, NJ 07102-5210
United States
973-642-8857 (Phone)
Oscar Couwenberg
University of Groningen - Faculty of Law - Department of Law and Economics ( email )
P.O. Box 716
9700 AS Groningen Netherlands
31 50 363 6882 (Phone)
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