The Economics of Bankruptcy Reform

60 Pages Posted: 7 Jul 2004 Last revised: 13 Sep 2010

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Oliver Hart

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

John Moore

University of Edinburgh - Economics; London School of Economics

Date Written: June 1992

Abstract

We propose a new bankruptcy procedure. Initially, a firm's debts are cancelled, and cash and non-cash bids are solicited for the 'new" (all-equity) firm. Former claimants are given shares, or options to buy shares, in the new firm on the basis of absolute priority. Options are exercised once the bids are in. Finally, a shareholder vote is taken to select one of the bids. In essence, our procedure is a variant on the U.S. Chapter 7, in which non-cash bids are possible; this allows for reorganization. We believe our scheme is superior to Chapter 11 since it is simpler, quicker, market-based, avoids conflicts, and places appropriate discipline on management.

Suggested Citation

Aghion, Philippe and Hart, Oliver D. and Moore, John Hardman, The Economics of Bankruptcy Reform (June 1992). NBER Working Paper No. w4097. Available at SSRN: https://ssrn.com/abstract=259420

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Oliver D. Hart

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-3461 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John Hardman Moore

University of Edinburgh - Economics ( email )

50 George Square
Edinburgh, EH8 9JY, Scotland
United Kingdom

London School of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
44-171-955-7550 (Phone)
44-171-831-1840 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
153
Abstract Views
2,370
rank
192,374
PlumX Metrics