Corporate Governance in Chapter 11 Reorganizations: Reducing Costs
56 Pages Posted: 2 Jul 2015
Date Written: 1993
Throughout the past two years, Trans World Airlines, Midway Airlines, and R.H. Macy Company, as well as over 46,000 other corporations, have filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Of the firms that have filed Chapter 11 reorganization petitions, over eighty percent will never reorganize successfully and will not avoid a subsequent conversion to a Chapter 7 liquidation proceeding. The effects of these “misfilings” are enormous. Most fundamentally, an attempted reorganization, when liquidation is the more efficient solution, can unnecessarily increase the overall costs of bankruptcy significantly.
In response to these costs, some scholars have called for the repeal of Chapter 11, while others have advocated merely a new approach to Chapter 11 reorganization proceedings. Still others defend the present Chapter 11 system. This Article contends that reducing bankruptcy costs requires a revised Chapter 11 reorganization structure. This Article posits a two-part revision to the present Chapter 11 system: (1) replacing corporate managers acting as debtors in possession with trustees; and (2) establishing a methodology to guide these new decision makers in determining whether a reorganization or a liquidation is the proper course of action in a given case.
Keywords: Chapter 11, Bankruptcy
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