Corporate Reorganization and the Economic Theory of the Firm

Abstract

This paper considers the idea that the nature of corporations has changed since traditional corporate reorganization was introduced, and the arguments that corporate reorganization may no longer be necessary due to the changing nature of the firm. To do that, it is necessary to contemplate the economic elements of a firm, both tangible and intangible, the value each contributes to the “going concern” value, and how reorganization affects each group. The paper considers how firms have evolved over the last century, and how that evolution has affected their elements, and then questions whether, if the components of firms have changed, then should the process for reorganizing those elements also change? To better understand the original goal of reorganization, it looks at its origin and how processes such as equity receiverships and the subsequent traditional corporate reorganization were designed to rescue those elements when firms became financially distressed.

Specifically, in looking at the types of assets that make up a firm, the paper considers whether, in the event of a corporation’s demise, it becomes vital to save the corporation for the sake of saving these assets, or whether their value can be utilized just the same in other firms.

The paper will then consider whether Canadian courts, in the process of corporate reorganization, have considered the nature of the firm, and more importantly, the changing nature, and how it might affect corporate reorganization. This analysis is done by examining statements made in Canadian CCAA cases to see whether they consider the separate economic elements of a firm, over and above its tangible physical assets, and whether the intangible value is considered in the decisions made by courts during the restructuring process, when determining whether a particular company may or may not be worth saving.

Finally, this paper considers the possibility that although Canadian courts do not discuss the changing nature of the firm in their reorganization decisions, and how corporate reorganization can respond to it, they do nonetheless factor it into their decisions, through the process of “liquidating CCAAs”.