The Economics of Bankruptcy Reform

Philippe Aghion, Oliver Hart and John Moore

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We propose a new bankruptcy procedure. Initially, a firm's debts are cancelled, and cash and non-cash bids are solicited for the "new" (all equity) firm. Former claimants are given shares, or options to buy shares, in the new firm on the basis of absolute priority. Options are exercised once the bids are in. Finally, a shareholder vote is taken to select one of the bids. In essence, our procedure is a variant on the U.S. Chapter 7, in which non-cash bids are possible; this allows for reorganization. We believe our scheme is superior to Chapter 11 since it is simpler, quicker, market-based, avoids conflicts, and places appropriate discipline on management.

Date: 1992-08
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Related works:
Chapter: The Economics of Bankruptcy Reform (1994)
Journal Article: The Economics of Bankruptcy Reform (1992)
Working Paper: The Economics of Bankruptcy Reform (1992)
Working Paper: The Economics of Bankruptcy Reform (1992)
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