How the Balance of Power Is Changing in the Resolution of Corporate Financial Distress

Among those who study corporate financial distress and reorganization, the notion that senior lenders are in control is deeply ingrained. Celebrated papers in the law and corporate finance literatures attribute lender influence during periods of distress to blue-sky contracting practices.[1] When extending credit, senior lenders take a blanket lien on the borrower’s assets, and the borrower agrees to strict financial maintenance and other covenants. The covenants are designed to hem in the borrower. If its performance declines or it wants to pursue new opportunities that materially alter risk, the borrower has to renegotiate. Lenders use renegotiations to force changes … Read more

Federalism and Federal Corporate Rights

Controversy surrounding the role of corporations in public life has not abated in the six years since the Justices decided, in Citizens United v. FEC,[1] that corporations have political-speech rights secured by the First Amendment. If anything, the Court’s judgment in Burwell v. Hobby Lobby, Inc.,[2] although far less significant in practical terms, magnified discontent in some quarters. Doomed calls for constitutional amendment are still a frequent refrain. At least one presidential candidate has reportedly proposed a litmus test to Supreme Court nominations based on a commitment to overturning Citizens United.[3] And so on. … Read more

Neutral Principles in the Attribution of Corporate Rights

The question of corporate rights has garnered much attention in academic as well as lay circles since the Supreme Court’s decisions in Citizens United v. FEC and Burwell v. Hobby Lobby Stores, Inc.[1] Yet the status of incorporated firms under the Constitution (and other sources of federal law) is by no means a new concern. American jurists and scholars have grappled with the problem of government power over corporations since at least the first decade of the nineteenth century. Perhaps surprisingly, however, the Court has never articulated a consistent approach to corporate rights—an explanation of which kinds of … Read more