Bankruptcy Hardball

67 Pages Posted: 28 Nov 2018 Last revised: 7 Jul 2020

See all articles by Jared A. Ellias

Jared A. Ellias

University of California, Hastings

Robert Stark

Brown Rudnick LLP

Date Written: January 19, 2019


On the eve of the financial crisis, a series of Delaware court decisions added up to a radical change in law: Creditors would no longer have the kind of common law protections from opportunism that helped protect their bargain for the better part of two centuries. In this Article, we argue that Delaware's shift materially altered the way large firms approach financial distress, which is now characterized by a level of chaos and rent-seeking unchecked by norms that formerly restrained managerial opportunism. We refer to the new status quo as "bankruptcy hardball." It is now routine for distressed firms to engage in tactics that harm some creditors for the benefit of other stakeholders, often in violation of contractual promises and basic principles of corporate finance. The fundamental problem is that Delaware's change in law was predicated on the faulty assumption that creditors are fully capable of protecting their bargain during periods of distress with contracts and bankruptcy law. We show through a series of case studies how the creditor's bargain is, contrary to that undergirding assumption, often an easy target for opportunistic repudiation and, in turn, dashed expectations once distress sets in. We further argue that the Delaware courts paved the way for scorched earth distressed governance, but also that judges can help fix the problem.

Keywords: bankruptcy; corporate governance; distress; chapter 11

JEL Classification: K22; G33; G30; G34; K41

Suggested Citation

Ellias, Jared A. and Stark, Robert, Bankruptcy Hardball (January 19, 2019). UC Hastings Research Paper No. 308, 108 California Law Review 745, Available at SSRN: or

Jared A. Ellias (Contact Author)

University of California, Hastings ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Robert Stark

Brown Rudnick LLP ( email )

Seven Times Square
New York, NY 10036
United States

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