A New Approach to Corporate Reorganizations

Abstract

This article proposes a new method of dividing the reorganization pie among the participants in corporate reorganizations. This method, I argue, can address the substantial efficiency and fairness problems that afflict the existing process of division. Under the proposed method, participants will receive certain rights with respect to the reorganized company's securities; these rights will be designed so that, whatever the reorganization value is, no participant will have a basis for complaining that he is receiving less than the value to which he is entitled. Although I propose the method as a basis for law reform, I show that it also can be used under the existing reorganization rules.

Keywords: Chapter 11, reorganization, bankruptcy, absolute priority, options