The Case for Symmetry in Creditors' Rights

62 Pages Posted: 22 Feb 2008 Last revised: 18 May 2009

See all articles by Richard Squire

Richard Squire

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Date Written: April 21, 2009


Using an original framework for evaluating bankruptcy rules, this Article casts doubt on the efficiency of legal arrangements that give some creditors an absolute advantage over others in the division of a debtor's assets. Such arrangements - which I classify as asymmetrical - are widely used in the modern economy, and include the secured loan, American general partnership and guaranty contract. In contrast, symmetrical arrangements - which include the corporation and common-law partnership - confer no absolute advantage, because they give each creditor group a prior claim to a distinct asset pool. I demonstrate that symmetrical arrangements produce lower debt appraisal costs, more efficient creditor monitoring, and speedier bankruptcy proceedings; they also are less conducive to exploitation of creditors such as tort victims who do not adjust to subordination of their claims. These results reveal that lawmakers could create social wealth by reforming asymmetrical arrangements to be symmetrical. I conclude by showing how symmetry is superior to previous proposals for reforming the secured loan.

Keywords: bankruptcy, asset partitioning, secured transactions, corporations, partnership

JEL Classification: G33, K22, K12

Suggested Citation

Squire, Richard C., The Case for Symmetry in Creditors' Rights (April 21, 2009). Yale Law Journal, Vol. 118, p. 806, 2009, Available at SSRN:

Richard C. Squire (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States
212-964-1584 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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