Forced to Make Mistakes: Reasons for Complaining about Bebchuk's Scheme and Other Market-Oriented Insolvency Procedures
University of Münster
European Journal of Law and Economics, Vol. 21, No. 1, pp. 79-94, 2006
Bebchuk's proposal for bankruptcy reform is analysed, in particular his claim that using options is fair and prevents justified complains. However, the proposal has a systematic bias against junior creditors and former shareholders because they have to pay for unavoidable mistakes in estimating the company's value, may lack the financial resources to exercise their options and lose by a day of reckoning. A market solution will be specified that is simpler and at least as fair as Bebchuk's scheme according to his own standards. However, a complete solution to these problems may have to be a non-market one.
Keywords: Absolute priority, Auction, Bankruptcy, Estimate, Insolvency
JEL Classification: G33, K39, K22
Date posted: August 23, 2006