Should We Abolish Chapter 11? Evidence from Canada
Posted: 6 Dec 1996
Over the last decade, Chapter 11 has been the brunt of serious criticism. Some American jurists arguing in favor of revising Chapter 11 have raised the possibility that the Canadian reorganization system might be a good alternative to the existing US system. This article argues that there are fruitful lessons to be learned from the Canadian experience with court-supervised reorganization. Canadian evidence shows that acceptance, confirmation, and consummation rates of proposals are very high. Moreover, firms reorganizing in Canada are almost ten times more likely to survive reorganization than their American counterparts. Furthermore, Canadian data yield no support for the claim that problems with bankruptcy law result from an over-abundance of small firms in reorganization. The analysis also shows that the Canadian reorganization procedure offers a very rapid solution to financial distress and that creditors gain in expected value terms.
JEL Classification: G33, K22
Suggested Citation: Suggested Citation