Words that Wound: Defining, Discussing, and Defeating Bankruptcy 'Corruption'

Abstract

In Courting Failures How Competition for Big Cases Is Corruption the Bankruptcy Courts, Professor Lynn M. LoPucki argues that certain bankruptcy courts, most notably those in New York, Chicago, and Delaware, are competing for large Chapter 11 cases and that this competition has corrupted the bankruptcy system. Not surprisingly, these provocative arguments concerning venue choices for large firms has caused an uproar in the bankruptcy community. Indeed, because many of the lawyers and judges who have read the book perceive that it unfairly attacks the integrity of the bankruptcy bench, the discourse over problems associated with the current bankruptcy venue choices available for large corporations has been overshadowed by the politically loaded term "corruption."

This review essay attempts to re-characterize the notion of corruption and suggests that reasonable minds rationally could conclude that at least some of the court practices that Courting Failures suggests are corrupt can be explained by reasons having nothing with a court's desire to compete for big bankruptcy cases. The essay concludes by agreeing with the book's findings concerning some of the corrupt management practices that caused the downfall of Enron, WorldCom, and other large firms and proposes that corporate boards should face the risk of a shaming sanction (i.e., being labeled unfit to serve on corporate boards) to give them a greater incentive to monitor those corrupt practices.

Keywords: Bankruptcy Courts, Corruption, Competition, Venue

JEL Classification: G33