Conference Proceeding

Foreword: A Bankruptcy Conference for the ’90s

Daniel L. Keating
This Symposium presents the papers and commentary that served as the basis for the lively exchange of the Conference itself. The Conference was held at the John M. Olin School of Business, Washington University, on February 25 and 26, 1994. The Conference was sponsored by the Washington University School of Law, and was funded in part through grants from the National Conference of Bankruptcy Judges’ Endowment for Education and from…
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A World Without Debt

Barry E. Adler
In Part I of this essay, I give a brief description of the collective action problem that Baird identifies as the bankruptcy issue for corporate debtors. In Part II, I explain why I believe there is no collective action problem and give what I believe is an essentially simple explanation of a world without debt. In Part III, I respond directly to the criticisms of a world without debt. Finally,…
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What is Right About Bankruptcy Law and Wrong About Its Critics

Samuel L. Bufford
My comments in this paper focus on the papers in this Symposium by Professors Barry Adler; James Bowers; and Philippe Aghion, Oliver Hart and John Moore (Aghion-Hart-Moore) I argue that the central points of these papers are gravely mistaken because they completely misunderstand the character of the bankruptcy caseload and procedures, they ignore some important purposes of bankruptcy reorganization, and they misstate the success rate for reorganizations. I have chosen…
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Improving Bankruptcy Procedure

Philippe Aghion, Oliver Hart and John Moore
This Article attempts to provide an economic perspective on bankruptcy procedure. In Parts II and III, we discuss the rationale for, and goals of, bankruptcy procedure. Part IV describes how existing procedures fall short of these goals. Our main point is that reorganization procedures like Chapter 11 are flawed because they mix the decision of who should get what with the decision of what should happen to the bankrupt company.…
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Discussion of Improving Bankruptcy Procedure by Philippe Aghion, Oliver Hart, and John Moore

Philip H. Dybvig
By bringing together a wide range of bankruptcy scholars and practitioners, this Conference has made very clear the broad extent of opinions about current bankruptcy law. One extreme view suggests bankruptcy is a mysterious and wonderful process that has many benefits that are difficult or impossible to quantify or enumerate. A polar extreme view, presented in the paper I am discussing by Aghion, Hart, and Moore (AHM), is that bankruptcy…
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Commentary on Aghion, Hart, and Moore, Improving Bankruptcy Procedure

Ian F. Fletcher
I would consider it most unlikely that their radical model for determining the fate of insolvent companies will be incorporated into any legislative proposals that emerge from the current review. From the standpoint of most of the interested parties involved in the operation of U.K. insolvency law, Aghion, Hart, and Moore’s suggested process of mandatory transubstantiation, whereby debt is converted into equity “on the stroke of midnight,” as it were,…
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Through Chapter 11 with Gun or Camera, but Probably Not Both: A Field Guide

John D. Ayer
The purpose of this Article is to offer some clarification in the interest of complication.
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Musings During a Symposium Afternoon

David A. Lander
In this brief musing I will describe one of the many bases for concluding that when one tracks through current American bankruptcy law, she finds that there is a series of principles that overshadow the law and economics principles. I will then compare the process by which bankruptcy law is made in the United States with the process by which Article 9 of the Uniform Commercial Code is made, to…
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The Reorganization of Closely Held Firms and the “Opt Out” Problem

Douglas G. Baird
This Article argues that the ability of parties to shape their investments in firms is responsible for the small costs of bankruptcy. The paper focuses on how investors can minimize the costs of bankruptcy even when they do not take steps to avoid it altogether.
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Some Gloomy Thoughts Concerning Cross-Border Insolvencies

Douglass G. Boshkoff
In this Article, I: (1) briefly discuss the avenues of cooperation available when Nation B is the United States; (2) assess the current level of cooperation with Nation A; and (3) speculate whether the situation is likely to change in the foreseeable future.
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Commentary on Boshkoff, Some Gloomy Thoughts Concerning Cross-Border Insolvencies

Ian F. Fletcher
The fruits of long experience suggest that caution and skepticism are essential qualities of mind with which to approach the phenomenon of cross-border insolvency and the multiple problems generated thereby. Pessimism may thus be acknowledged as closely akin to realism for the current purpose.
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Comment: A More Optimistic View of Cross-Border Insolvency

Jay Lawrence Westbrook
In re Axona and In re Maxwell Communication Corp, along with other cases in other jurisdictions, demonstrate a remarkable level of cooperation in international insolvency in comparison with the discouraging results accepted as inevitable just a few years ago. When one considers these concrete results in the courts in conjunction with the rapidly expanding international initiatives for reform in this field, the prospects seem distinctly ungloomy.
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Rehabilitation, Redistribution or Dissipation: The Evidence for Choosing Among Bankruptcy Hypotheses

James W. Bowers
This Article addresses that new redistributive view of bankruptcy in its two most typical versions-which I denominate the “Rehabilitative” and “Pure Redistribution” hypotheses, respectively-and argues that neither is consistent with the existing empirical data concerning corporate reorganizations. It then proposes a new thesis about bankruptcy which is inspired not only by the existing data, but also by new theoretical insights: that measures which avoid some kinds of market failures, such…
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Differing Perceptions of Attorney Fees in Bankruptcy Cases

Theodore Eisenberg
Part I describes the data. Part II shows that both judges and lawyers view the fee system through a self-serving lens. Each group tends to overstate the merits of its professional performance compared to the other group’s perception of that performance. Part III explores interstate differences as a source of differing perceptions. It finds that judge and lawyer perceptions of the same reality can be as important as the real…
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Comments on Eisenberg, Differing Perceptions of Attorney Fees in Bankruptcy Cases

Lloyd A. Palans
My problem is not with the right to criticize fees or the “perceptions” of lawyers or judges with respect to bankruptcy fees. After all, this is America. But, I am compelled to ask: Why? For what purpose? At some point, academicians must reintroduce themselves to reality. The true test of legal scholarship-whether it has advanced legal thought, theory and analysis-is, after all, what this Interdisciplinary Conference is about.
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The Value of Obvious Empirical Results and the Omniscient Mr. Palans: Response to Mr. Palans’ Comments

Theodore Eisenberg
The Article did not defend this mode of work; perhaps I am too immersed in it to always keep in mind the merits of discussing the question. So let me spell out its benefits here.
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Creditor Control in Financially Distressed Firms: Empirical Evidence

Stuart C. Gilson and Michael R. Vetsuypens
In this Article we present the results of empirical research that examines how creditor control is manifested in financially troubled firms that have to renegotiate their debt contracts.
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Comment

William C. Whitford
Stuart Gilson, writing sometimes with Michael Vetsuypens, has produced an impressive body of empirically based scholarship documenting extensive creditor control over financially distressed firms.’ This work should end the practice of starting an analysis with the assumption that management in financially distressed firms remains loyal to equity interests.
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Taking Community Interests into Account in Bankruptcy: An Essay

Karen Gross
I seek to identify and then critique the premises that appear to underlie the conclusion that community interests have no place in the debate about bankruptcy.
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Response to Professor Gross: Taking the Interests of the Community into Account in Bankruptcy—A Modern-Day Tale of Belling the Cat

Barry S. Schermer
Professor Gross’ proposal to take community interests into account in bankruptcy is reminiscent of the proposal to bell the cat. Both suggestions present a solution on the theoretical level, but both are certain to fail in their application because they do not consider present realities. The community interest argument fails on three fronts: definition, application, and the role of the decisionmaker. After a short illustration, each shortcoming will be addressed…
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The Changing Paradigm of Debt

Kathryn R. Heidt
In this Article I suggest that the current paradigm of debt used in bankruptcy law is outmoded. Products liability and mass tort bankruptcies were the first wave of cases with obligations that did not fit neatly into the existing model of debt. Environmental obligations were next-obligations based on Superfund and other federal and state environmental laws.
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Getting a Handle on Late-Manifesting Claims: A Comment

Daniel L. Keating
I am going to argue by contrast that the claims dilemma is not really a problem with the current Bankruptcy Code or with a shifting paradigm of debt; rather, it is a problem of timing and information that defies any neat solution, and certainly any solution that can be drafted into the Bankruptcy Code.
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Federated’s Acquisition and Bankruptcy: Lessons and Implications

Steven N. Kaplan
This paper combines the analyses in my two previous papers on the Federated acquisition, Campeau’s Acquisition of Federated: Value Created or Value Destroyed?, and Campeau’s Acquisition of Federated. Post-Bankruptcy Results by comparing the value of Federated Department Stores (Federated) before its purchase by Campeau Corporation (Campeau) to its postbankruptcy value. Federated’s assets increased in value by $3.1 billion in 1992 dollars (or $1.6 billion in 1987 dollars). The Federated purchase…
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Comments on Federated’s Acquisition and Bankruptcy: Lessons and Implications

Christopher G. Lamoureux
This Article is a case study of Campeau Corporation’s acquisition of Federated Department Stores in 1988, Federated’s subsequent bankruptcy filing, and finally its emergence from Chapter 11 in 1992.
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Compensating Unsecured Creditors for Extraordinary Bankruptcy Reorganization Risks

Lynn M. LoPucki and William C. Whitford
To reduce creditors’ and shareholders’ incentives to resist managers’ efforts to maximize, we proposed that parties to the reorganization case who stand to benefit during the pendency of a Chapter 11 reorganization from a particular investment be required to compensate those disadvantaged by it. The purpose of this article is to elaborate on that proposal.
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Hosing Down Senior Claims with a Quicker and Dirtier Chapter 11

Charles W. Mooney Jr.
Professors LoPucki and Whitford have written an interesting paper. I shall address some specific points raised in their paper.
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The Ex Ante Effects of Bankruptcy Reform on Investment Incentives

Robert K. Rasmussen
To assess the ex ante costs of bankruptcy reform, Part I of this Article begins with an examination of the literature on the agency costs in corporations. The costs arise both with the division of ownership among different claimholders and with the separation of ownership and control. Implicit in this literature is the assumption that bankruptcy law respects the contractual priority among the various claimants of the firm. It is…
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The Absolute Priority Rule and the Firm’s Investment Policy

Allan Schwartz
This Article will focus on an aspect of the various reform schemes that Rasmussen notes but does not discuss in detail: each of these schemes increases the likelihood that the absolute priority rule will be strictly followed in bankruptcy. When absolute priority is strictly followed, senior claims are paid in full before junior claims get paid at all.
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Conversion Rights and the Design of Financial Contracts

Alexander J. Triantis and George G. Triantis
Part II of this Article discusses the gains yielded by convertible debt financing. Convertible debt can act as a signal of favorable private information and can mitigate the incentives of shareholders to promote excessive risk taking by the firm. Part III describes puttable stock and the legal regulation that bears on it. The regulation of puttable stock ranges from prohibition to the requirement that the firm be solvent after the…
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Searching for Reorganization Realities

Elizabeth Warren and Jay Lawrence Westbrook
The study, which is described in more detail below, is a projected five-year longitudinal analysis of business bankruptcy cases filed in twenty-three federal districts during calendar year 1994. Because the information presently available from systematic empirical studies on business bankruptcy is so limited, our study necessarily must be devoted in large part to establishing baseline data about this sort of legal proceeding. But we have room within this framework to…
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Methodological Realities: Social Science Methods and Business Reorganizations

Teresa A. Sullivan
The objective of this Article is to argue that our methods are appropriate for analyzing business bankruptcy as a class of human and organizational behavior.
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Reorganization Realities, Methodological Realities, and the Paradigm Dominance Game

Lynn M. LoPucki
The comments I present here pertain to two subjects. The first is the Warren and Westbrook attack on “arm chair theorists’ and the response of the Conferees to this attack. The second is the problem of sample selection and its relationship to regularized data gathering.
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Does Chapter 11 Save Economically Inefficient Firms?

Michelle J. White
This Article presents a game theoretic model that explains why Type I error may occur in bankruptcy.
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Triggers and Priority: An Integrated Model of the Effects of Bankruptcy Law on Overinvestment and Underinvestment

Daniel E. Ingberman
Specifically, in this Article two dimensions of investment are considered: (1) the firm’s choice of capitalization or its capital-intensity of production (including the amount of capital invested in the firm, and the debt/equity mix); and (2) given the firm’s choice of capitalization, its choice among alternative investment opportunities. Dimension (1) covers what is usually referred to as the “underinvestment” problem by characterizing the firm’s endogenous choices of debt and equity…
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What’s Right About Chapter 11

William C. Whitford
I will not focus principally on the proposed alternatives to Chapter 11. My focus instead is on Chapter 11. While certainly there are difficulties with Chapter 11 as practiced, I believe it has some unrecognized or underemphasized virtues, virtues that will be lost if Chapter 11 is replaced in one of the radical ways that has been proposed.
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The Use of Qui Tam Actions to Enforce Federal Grazing Permits

Edmund C. Baird III