Assessing the Chrysler Bankruptcy
Michigan Law Review, Vol. 108, pp. 727-772, 2010
Harvard Law and Economics Discussion Paper No. 645
U of Penn, Inst for Law & Econ Research Paper No. 09-22
46 Pages Posted: 30 Jun 2009 Last revised: 8 Jul 2013
Date Written: 2010
Abstract
Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the 19th and early 20th century equity receiverships, and that its potential, if followed, for disrupting financial markets surrounding troubled companies in difficult economic times is more than small.
Keywords: corporate reorganization, bankruptcy, chapter 11
JEL Classification: G18, G30, G34, G38, J52, K11, K12, K22, L21, L62
Suggested Citation: Suggested Citation
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