The Costs of Chapter 11 in Context: American and Dutch Business Bankruptcy
University of Groningen - Faculty of Spatial Sciences
Stephen J. Lubben
Seton Hall University - School of Law
October 19, 2009
American Bankruptcy Law Journal, Vol. 85, 2011
Seton Hall Public Law Research Paper No. 1491351
In this paper we adopt a new approach to the issue and contextualize the cost of chapter 11 by comparison to the costs of business bankruptcy in the Netherlands. Using unique data-sets that each author has developed in connection with other projects, we match a group of comparable cases from each jurisdiction. The results not only contextualize chapter 11 by reference to a comparable international economy, but also provide important comparative insights.
Most importantly, we find that "law matters." In particular, because the two jurisdictions consider the cost of corporate reorganization in different ways - chapter 11 includes almost all professional costs incurred during the case to be chapter 11 costs, whereas the Netherlands considers a narrower range of professionals - the difference in jurisdictions is initially the most important factor in explaining the cost of reorganization. We then account for these legal distinctions, and find that economic factors like the size of the debtor and the degree to which the firm's debts are secured explain most of the cost of corporate bankruptcy - irrespective of jurisdiction.
Number of Pages in PDF File: 28
Keywords: chapter 11, bankruptcy costs, direct costs, financial distress, Netherlands
JEL Classification: G33, G44, K22, K29, K41
Date posted: October 20, 2009 ; Last revised: June 22, 2013