The Interest Of Chapter 11 Of The U. S. Bankruptcy Code-00-6891

By Author: rafalinares
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As business lawyer, I am a firm proponent of the utility of chapter 11 of the U. S. Bankruptcy Code as a restructuring tool. I want to emphasize that I view chapter 11 as a "tool"—not a "fix"—in the context of financial distress. The effectiveness of this tool depends largely on who is using it and how it is being utilized. Companies don't fail due to chapter 11; rather, companies fail because, among other things, they wait too long to arouse the chapter 11 tool, they don't realise how best to employ that tool, or perchance they plainly have outlived their economical utility.

The effectiveness, however, likewise depends on the construction of the tool itself. So how do we valuate its construction? Though there are a number of very useful studies on the topic, I suggest we look back at the sources of chapter 11 and three of its principal features: Its dual goals of rehabilitation and value maximization; its design to mitigate the collective action problem; and its capacity to promote negotiation and consensual solution.

The dual goals of rehabilitation and value maximization require transparency and ...
... info sharing to all, and by all, key constituents. The collective action problem merits strong rules preserving the status quo while constituencies gather around the negotiating table. And negotiation undeniably needs a flexible framework and a neutral third party with the discretion and power to adjust the rules to the queer needs of the case. Does chapter 11 presently measure up?

Over the years, chapter 11 has growingly moved away from its initial objectives and, in some respects, been captured by particular interest groups. This shift has formulated weaker rules and less flexibleness. It likewise has limited the contributions of our specialized and very gifted bankruptcy bench.

During my time at Credit Slips, I hope to explore the strengths and weaknesses of chapter 11 in its current state, including its role in extenuating obsolescence, creating value and exploiting info asymmetries. Chapter 11 has changed and perchance not all for the best. I suggest that we might best move it forward by looking backward.

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