The Dynamics of Large and Small Chapter 11 Cases: An Empirical Study
Douglas G. Baird
University of Chicago Law School
IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance
China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management
Yale ICF Working Paper No. 05-29
AFA 2008 New Orleans Meetings Paper
ECGI - Finance Working Paper No. 107/2005
This paper shows that the dynamics of Chapter 11 turn dramatically on the size of the business. The vast majority of the assets administered in Chapter 11 are concentrated in a handful of large cases, but most of the businesses in Chapter 11 are small, and the smaller the business, the smaller the distribution to general unsecured creditors. For businesses with assets above $5 million, unsecured creditors typically collect half of what they are owed. Where the business's assets are worth less than $200,000, ordinary general creditors usually recover nothing. In the typical small Chapter 11 case, the tax collector is the central figure. In small business bankruptcies, priority tax liabilities are the largest unsecured liabilities of the business. Tax obligations are entitled to priority and are obligations of both the corporation and those who run it. Given the large shadow tax claims cast over small Chapter 11 reorganizations, accounts of small Chapter 11 must focus squarely on them.
Number of Pages in PDF File: 43
Keywords: bankruptcy, creditors, Chapter 11
JEL Classification: G32, G38, K22
Date posted: February 19, 2007
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