Current policy discussions tend to minimize the role of bankruptcy law in mitigating the financial fallout from COVID-19. Scholars too are unsure about the merits of bankruptcy, especially Chapter 11, in resolving business distress. In this paper, we argue that bankruptcy should be a central part of policies targeting large corporations, but should be used only as a backup to other policies for consumers and small businesses.
With respect to large corporations, we begin with the observation that, although the current crisis has destabilized all businesses, many were likely to suffer distress regardless of a pandemic. The past decade saw … Read more
In bankruptcy, as in corporate law, valuation drives disputes. Prior bankruptcy scholarship points to disagreements about valuation and judicial valuation error as key drivers of Chapter 11 outcomes, including the decision whether to reorganize the distressed firm or sell it off pursuant to a Section 363 sale. Avoiding valuation disputes and valuation errors is also the underlying driver of most proposed reforms to Chapter 11, from Douglas Baird’s mandatory auctions to Lucian Bebchuk’s options approach.
In a new paper, we undertake a detailed examination of bankruptcy court opinions involving valuation disputes. We study all reported cases filed between 1990 and … Read more
Much of the debate in bankruptcy scholarship today centers on the extent to which the law protects stakeholder options. In a new paper, “Beyond Options,” we argue that this focus is misplaced. Protecting options is neither necessary nor sufficient for advancing the goal of a well-functioning bankruptcy system. What is needed is a regime that cashes out the rights of junior stakeholders with minimal judicial involvement.
Modern bankruptcy scholarship adopts an options-based perspective, seeing options embedded in every layer of the firm’s capital structure and examining ways that current law redistributes value across stakeholders by modifying, creating, or destroying options. … Read more