Corporate Governance, Bankruptcy Waivers and Consolidation in Bankruptcy

Abstract

Corporate law formalities that impede effective bankruptcy relief are properly overridden in bankruptcy. Those formalities generally count for little outside bankruptcy and should not hamstring a bankruptcy court’s ability to afford effective relief consistent with the underlying policies of the Code. Nevertheless, recent scholarship and caselaw in bankruptcy, reflecting a contract uber alles zeitgeist has given too much credence to both entity partitions that blink the reality of how firms actually operate and contractual barriers to voluntary bankruptcy relief baked into corporate charters. Bankruptcy law should refocus on honoring substance over form. In doing so, corporate formalities will properly yield to underlying substantive bankruptcy policy. The limited role of corporate formalities in the event of insolvency should be factored into market expectations surrounding asset securitization, including the frailty of both entity partitions within corporate groups and bargained-for restrictions on entities’ access to bankruptcy relief.

Keywords: bankruptcy law, corporate law, bankruptcy code, bankruptcy relief, corporate governance