Bankruptcy Resolution and the Restoration of Priority of Claims

41 Pages Posted: 20 Jun 2016 Last revised: 23 Jul 2016

See all articles by Vedran Capkun

Vedran Capkun

HEC Paris - Accounting and Management Control Department

Lawrence A. Weiss

Tufts University - The Fletcher School

Date Written: June 13, 2016

Abstract

We present new evidence on the violation of priority of claims in bankruptcy and recovery rates for secured creditors, unsecured creditors, equity holders using a sample of firms that filed for Chapter 11 bankruptcy between 1993 and 2004. Our study reveals a number of new insights: First, we find a significant reduction in the violations of priority of claims compared to research on prior periods with equity holders appearing to have lost their ability to extract concessions in violation to priority of claims. Second, the results are consistent with the hypothesis that unsecured creditors accept a violation to priority of their claims in order to obtain a faster resolution. Third, the results suggest that secured creditors are less likely, and unsecured creditors are more likely, to experience a violation to priority of their claims when secured creditors exercise increased control over the debtor (as proxied by debtor in possession financing). Finally, violations to secured creditors priority of claims are more likely when filings occur in Delaware and the Southern District of New York than elsewhere.

Keywords: Bankruptcy, Priority of Claims, Chapter 11, APR Violations, Debtor-in-possession financing, Delaware

JEL Classification: G33, K22

Suggested Citation

Capkun, Vedran and Weiss, Lawrence A., Bankruptcy Resolution and the Restoration of Priority of Claims (June 13, 2016). HEC Paris Research Paper No. ACC-2016-1160. Available at SSRN: https://ssrn.com/abstract=2795069 or http://dx.doi.org/10.2139/ssrn.2795069

Vedran Capkun

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France

Lawrence A. Weiss (Contact Author)

Tufts University - The Fletcher School ( email )

160 Packard Ave
Medford, MA 02155
United States
6176272735 (Phone)
6176273712 (Fax)

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