Law Commons^™

Corporate Restructuring Under Relative And Absolute Priority Default Rules: A Comparative Assessment, Jonathan M. Seymour, Steven L. Schwarcz

Faculty Scholarship

The European Union recently adopted a Restructuring Directive intended to facilitate the reorganization of insolvent and other financially troubled firms. Although the central goal of the Directive parallels that of chapter 11 of U.S. bankruptcy law—to protect and maximize the value of financially distressed but economically viable enterprises by consensually reorganizing their capital structure—the Directive introduces an innovative but controversial option: that EU Member States can decree that reorganization negotiations should be subject to a relative priority default rule, in contrast to the type of absolute priority default rule used by chapter 11. EU officials argue that relative priority is …