Protection for Whom? Creditor Conflicts in Bankruptcy

S.D. Longhofer and S.R. Peters

Working Papers from London School of Economics - Centre for Labour Economics

Abstract: In this article we provide a rationale for bankruptcy law that is based on the conflicts among creditors that occur when a debtor's iabilities exceed its assets. In the absence of a bankruptcy law, the private debt-collection remedies that creditors pursue when a debtor is insolvent result in an ad hoc disposal of the debtor's assets, thereby reducing the aggregate value of creditors' claim. We show that coordination clauses can be used by creditors in their loan agreements that will result in coordination, ex post.

Keywords: BUSINESS FINANCING; BANKRUPTCY; CREDIT (search for similar items in EconPapers)
JEL-codes: G33 K10 (search for similar items in EconPapers)
Pages: 31 pages
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:fth:lseple:9909

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