Competing Narratives in Corporate Bankruptcy: Debtor in Control vs. No Time to Spare
David A. Skeel Jr.
University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)
Michigan State Law Review, Vol. 2009, p. 1187, 2009
U of Penn, Inst for Law & Econ Research Paper No. 10-20
When a company like Chrysler or United Airlines files for bankruptcy, it offers narrative explaining the way out of its predicament. In support of its claim that the business is worth saving, the company may argue that it simply needs time to renegotiate its obligations with its creditors. Alternatively, it may say that asset values are deteriorating rapidly and it is imperative that the bankruptcy court immediately approve a sale of the company, or some other rapid disposition. These two possibilities correspond to the principal resolution narratives in current Chapter 11 bankruptcy practice, which I refer to as Debtor in Control and No Time to Spare.
Debtor in Full Control was the standard resolution narrative for large scale corporate bankruptcies for the first decade after the enactment of the current bankruptcy laws in 1978. In recent years, companies increasingly have invoked the No Time to Spare narrative, often because the companies’ principal assets are technology and human capital, whose value may quickly disappear. The invocation of the No Time to Spare narrative by Chrysler and General Motors, which were classic candidates for traditional, Debtor in Control reorganizations, could suggest that the old Debtor in Full Control narrative has been or soon will be fully displaced. Even in cases that clearly fit the earlier paradigm, the reasoning would be, the companies shoe-horned their cases into the No Time to Spare narrative.
Such a shift in narratives would hardly be the first. In the early twentieth century, the standard resolution narrative fit a pattern I call Banker Paternalism. The bankers who often dominated the process portrayed themselves as vigilant defenders of the interests of the ordinary investors they represented. Their Progressive and New Deal era critics, on the other hand, were not so sure.
This Essay begins with the earlier era. I then move to the present, and use the Lehman and automaker bankruptcies to explore the relationship between the Debtor in Full Control and No Time to Spare resolution narratives. This leads to a more general discussion of the significance of resolution narratives — and to my claim that two narratives may be preferable to a single dominant paradigm.
Number of Pages in PDF File: 20
Keywords: Corporate reorganization, time is of the essence, urgent need to protect corporate assets, history of bankruptcy law, legal history, corporations, resolution narratives in Chapter 11 bankruptcy practice
JEL Classification: G33, K22, K29
Date posted: October 10, 2010