Bankruptcy and Debt: A New Model for Corporate Reorganization

76 Pages Posted: 7 Feb 2015

Date Written: April, 1983

Abstract

Two of the core determinations made in a reorganization proceeding under chapter 11 of the Bankruptcy Code' are simply stated: Who gets how much? What will the new capital structure be? To resolve these simply stated questions of valuation and recapitalization, bankruptcy courts loosely oversee a lengthy bargaining process that is widely thought to be cumbersome, costly, and complex. The strain of extended financial stress results in lost sales when customers seek a more secure supply source, in consumption of valuable management time spent resolving financial difficulties, and in forgone opportunities to obtain new projects. Additional costs are borne by the employees, customers, and suppliers of the bankrupt company, as well as the comnunities in which it operates. Furthermore, while contraction of the bankrupt firm is usually in order, parts of the firm may sometimes be liquidated even though liquidation value is less than operational value. Finally, the firm often emerges from reorganization with an unnecessarily complex capital structure. Such a complex capital structure can cause the reorganized firm to adopt poor operational strategies, prevent it from raising new capital, and pose a barrier to a healthy merger.

Keywords: Chapter 11, 363 sales

Suggested Citation

Roe, Mark J., Bankruptcy and Debt: A New Model for Corporate Reorganization (April, 1983). Columbia Law Review, Vol. 83, No. 3, 1983. Available at SSRN: https://ssrn.com/abstract=2561052

Mark J. Roe (Contact Author)

Harvard Law School ( email )

Griswold 502
Cambridge, MA 02138
United States
617-495-8099 (Phone)
617-495-4299 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
194
Abstract Views
714
rank
156,105
PlumX Metrics