Taking Exception to the New Corporate Discharge Exceptions

21 Pages Posted: 28 Nov 2012

See all articles by Ralph Brubaker

Ralph Brubaker

University of Illinois College of Law

Date Written: May 6, 2005

Abstract

This article critiques the new corporate discharge exceptions enacted as part of the 2005 bankruptcy amendments that preclude a corporate debtor’s Chapter 11 plan confirmation from discharging certain fraud debts. This provision misperceives the fundamental nature of the Chapter 11 corporate discharge, erroneously equating it with bankruptcy’s “fresh start” for the “honest but unfortunate” individual debtor. The Chapter 11 discharge, however, is simply a (mundane) finality mechanism for ensuring the integrity of creditors’ relative distribution rights and ensuring the comprehensiveness of a Chapter 11 restructuring. The new corporate discharge exceptions, therefore, simply afford fraud creditors an oblique distribution priority and one that can actually threaten the ability of a viable entity to effectively restructure in the face of significant fraud liability. Moreover, sophisticated counsel will be able to entirely moot the applicability of the new corporate discharge provisions by effectuating a reorganization through an asset sale structure, in lieu of a traditional plan structure. Nonetheless, the very existence of that provision will perpetuate the misguided reflex to equate bankruptcy’s individual and corporate discharge provisions.

Keywords: bankruptcy discharge, discharge exceptions, fresh start, creditor equality, corporate reorganization, corporate punishment, Chapter 11, fraud

Suggested Citation

Brubaker, Ralph, Taking Exception to the New Corporate Discharge Exceptions (May 6, 2005). 13 American Bankruptcy Institute Law Review 757 (2005), Illinois Program in Law, Behavior and Social Science Paper No. LBSS13-16, Illinois Public Law Research Paper No. 13-23, Available at SSRN: https://ssrn.com/abstract=2181487

Ralph Brubaker (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
117
Abstract Views
724
Rank
488,764
PlumX Metrics