The Changing Nature of Chapter 11
42 Pages Posted: 29 May 2014
Date Written: May 29, 2014
The U.S. Chapter 11 bankruptcy has traditionally been viewed as equity friendly, with frequent absolute priority deviations (APDs) in favor of equity. By contrast, based on a more recent sample we find that both APDs and time spent in bankruptcy have declined dramatically. We hypothesize and confirm that innovations in the bankruptcy process, such as reliance on debtor-in-possession (DIP) financing and adoptions of key employee retention plans (KERPs) help explain this decline. We conclude that while the letter of bankruptcy law has not changed, Chapter 11 outcomes have become more creditor friendly in recent years.
Keywords: Bankruptcy, APR violations, Chapter 11
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