American Bankruptcy Law Journal, Forthcoming
42 Pages Posted: 21 Feb 2007
In this paper I revisit the data used in The Other Liquidation Decision to further examine the important question of liquidation of American businesses under chapters 7 and 11 of the Bankruptcy Code. In particular, I utilize a propensity score matching technique to address the differences between the chapter 7 and 11 cases in the sample. I also examine the use of weighted data to address the original study's selection protocols.
Some results are predictable: for example, unsecured creditors sometimes fare much better in chapter 11 liquidations. But other results are likely to surprise academics and chapter 11 practitioners alike. For example, even under a chapter 11 liquidation plan the median recovery to unsecured creditors is zero. At least half of the unsecured creditors will suffer a complete loss, regardless of the procedure the debtor uses to liquidate. And very few creditors ultimately receive the benefits of a chapter 11 liquidation - most chapter 11 cases convert to chapter 7 and very few liquidating plans are ultimately confirmed. Only 81 of 202 chapter 11 debtors in the sample filed plans, and only 43 of those plans were actually confirmed. Chapter 7 is thus the prevailing method of business liquidation, although a sizable number of firms first attempt either a reorganization or liquidation under chapter 11.
Keywords: bankruptcy, liquidation, business, chapter 11, chapter 7, insolvency
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