Chapter 11 at Twilight

30 Pages Posted: 23 Oct 2003

See all articles by Douglas G. Baird

Douglas G. Baird

University of Chicago Law School

Robert K. Rasmussen

University of Southern California Gould School of Law


In The End of Bankruptcy we detailed the forces that have rendered obsolete traditional conceptions of corporate reorganization. In a response to our article, Lynn LoPucki asserts that our paper lacked empirical foundation. In this response, we draw on LoPucki's data set of the reorganization of large, publicly held entities to show the robustness of our claims, both empirical and theoretical.

Looking in detail at the firms whose Chapter 11 cases ended in 2002, most of which concluded after we completed our original piece, we find that in over 80% of the cases the assets of the firm were either sold or the bankruptcy proceeding put in place a restructuring plan agreed to before bankruptcy was filed. The remaining firms evince little in the way of going-concern value. Moreover, equityholders are nearly always wiped out, and the board of directors is usually replaced.

Today's bankruptcy practice reveals creditors, particularly the senior lenders, in control. They use their powers to remove managers in whom they have lost confidence, replace the board of directors, put the corporation on the auction block and terminate the interest of equityholders. This paper provides further evidence that issues of control rather than priority dominate modern reorganization practice.

Keywords: Chapter 11, corporate reorganization

JEL Classification: K22, G33, G38

Suggested Citation

Baird, Douglas G. and Rasmussen, Robert K., Chapter 11 at Twilight. Vanderbilt Law and Economics Research Paper No. 03-18; U Chicago Law & Economics, Olin Working Paper No. 201, Available at SSRN: or

Douglas G. Baird (Contact Author)

University of Chicago Law School ( email )

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Chicago, IL 60637
United States
773-702-9571 (Phone)
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Robert K. Rasmussen

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089-0071
United States
213-740-6473 (Phone)
213-740-5502 (Fax)

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