Rethinking corporate bankruptcy theory in the twenty-first century

Sarah Paterson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Adopting a comparative UK/US approach, this article argues for the need to rethink corporate bankruptcy theory in the light of developments in the finance market. It argues that these developments have produced an effective mechanism, in large cases, for selecting between companies which will be worth more if they continue to trade and companies which ought to be allowed to fail, such that corporate bankruptcy law need no longer concern itself with steering creditor choice away from a sale of the business and assets and towards a restructuring. Moreover, it suggests that whilst the automatic stay remains a central tenet of corporate bankruptcy law where the market decides that the business and assets should be sold, in cases where the market sees more value if a company continues to trade, corporate bankruptcy law may operate very well without a stay as a resolution procedure for deadlocked negotiations. The article identifies that in many large restructuring cases the only liabilities which are implicated are financial liabilities, and queries the extent to which the distributional concerns of the progressive movement, and US federal bankruptcy law, apply where losses are shared amongst sophisticated financial institutions. It ends with an explanation of why the analysis is limited to large cases, an indication of areas for further research and a note of caution for the future.

Keywords: corporate law; law and economics; law and finance; legal theory (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2016-12-01
New Economics Papers: this item is included in nep-cfn and nep-law
References: Add references at CitEc
Citations:

Published in Oxford Journal of Legal Studies, 1, December, 2016, 36(4), pp. 697 - 723. ISSN: 0143-6503

Downloads: (external link)
http://eprints.lse.ac.uk/63496/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:63496

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().