 Ex post Efficiency of Bankruptcy Procedures: A General Normative FrameworkRégis Blazy and Bertrand Chopard Post-Print from HAL Abstract: In this paper, we consider the case of a distressed firm whose financial commitments have to be renegotiated with stakeholders (banks, trade creditors …). At default time, rival projects (continuation, piecemeal liquidation, liquidation as a going concern …) may be undertaken. In such a case, the most frequent way of making collective choices is to vote. Our attention focuses on the risk of not choosing the best project because of free riders: personal interests may block the issue in favor of the project associated to the highest value of the firm. At first, we consider a law-enforced procedure under which financial deviations from the absolute priority order (APO) are possible: each individual gain is slightly modified in order to obtain a non-strict majority in favor of the best project. This legal intervention can be implemented and considered as "optimal" if it respects four criteria: economic efficiency, financial neutrality, legal tolerability and democratic desirability. Under these conditions, any law-driven renegotiation process must defines financial transfers that underweight (respectively overweight) the sub-optimal gains (respectively losses) of the most influent voter. Moreover, the proportion of financial transfers granted to each stakeholder exactly reflects their relative influence power: in other words, financial deviations from APO can be interpreted as the price that any stakeholder has to pay (respectively receive) because of his marginal negative (respectively positive) impact on the collective decision. Then, these results serve as a guide to comment ex post efficiency of various bankruptcy procedures (US, French, English and German). Our approach may be interpreted as a first step in the design of an economically efficient procedure that should deal with both ex ante and ex post efficiencies. Keywords: Bankruptcy; Renegotiation; Law and finance; Optimality; International comparison (search for similar items in EconPapers) Published in International Review of Law and Economics, 2004, 24 (4), pp.447-471. ⟨10.1016/j.irle.2005.01.004⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00279018 DOI: 10.1016/j.irle.2005.01.004 Access Statistics for this paper More papers in Post-Print from HAL |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.