Abstract

http://ssrn.com/abstract=237029
 
 

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The Failure of Public Company Bankruptcies in Delaware and New York: Empirical Evidence of a 'Race to the Bottom'


Lynn M. LoPucki


University of California, Los Angeles (UCLA) - School of Law

Sara D. Kalin


University of California, Los Angeles (UCLA) - School of Law

July 22, 2000


Abstract:     
In the early 1990s, Delaware replaced New York as the jurisdiction of choice for the bankruptcy reorganization of large, public companies. In an empirical study of 188 companies emerging from bankruptcy reorganization from 1983 through 1996, the authors found that the refiling rates for public companies reorganized in Delaware and New York were about five to seven times the refiling rates for companies reorganized in other courts. Nine of the thirty large, public companies emerging in Delaware from 1991 to 1996 (30%) have already refiled. New York rates were higher during the period of New York's dominance than during the period of Delaware's dominance and higher for the judge who attracted cases to New York in the 1980s than for other judges on the New York court. Delaware and New York rates were highest for prepackaged bankruptcies; the opposite was true for other courts' rates.

The authors argue that Delaware refiling rates are probably higher than efficient. They conclude that New York, and later Delaware, each won its dominance of bankruptcy reorganization at least in part by confirming plans likely to lead to the necessity for further reorganization. Based on their conclusion that companies probably are seeking inefficient reorganizations in Delaware, the authors speculate that companies may also be seeking inefficient incorporations there.

The authors also found that public companies emerging from bankruptcy are more than four times as likely to file for bankruptcy reorganization as are public companies generally. The refiling rate for emerging companies is double the background rate for the first year after confirmation. It climbs to more than four times the background rate by the third year after confirmation and then declines to about three times the background rate by the eighth year after confirmation.

Number of Pages in PDF File: 49

Keywords: Delaware, refiling, Chapter 11, bankruptcy, reorganization, race to the bottom, race to the top, New York

JEL Classification: K22, K29

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Date posted: August 24, 2000  

Suggested Citation

LoPucki, Lynn M. and Kalin, Sara D., The Failure of Public Company Bankruptcies in Delaware and New York: Empirical Evidence of a 'Race to the Bottom' (July 22, 2000). Available at SSRN: http://ssrn.com/abstract=237029 or http://dx.doi.org/10.2139/ssrn.237029

Contact Information

Lynn M. LoPucki (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
(310) 794-5722 (Phone)
Sara D. Kalin
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
(310) 586-6872 (Phone)
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