Law Commons^™

The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company experiences financial distress, a control contest often follows. Management fights to remain in control of the company, and shareholders, creditors and others try to influence management’s exercise of that control—or wrest it away. This is not a new phenomenon. The degree of influence now exerted by corporate stakeholders in the distressed context, however, is strikingly different than in the past. Recent headlines highlight that stakeholder control issues are at the forefront of financially-distressed situations large and small. The U.S. government, as creditor, dictated the terms of Chrysler’s and General Motors’ bankruptcies. It also demanded and received preferred …

Mitigating Financial Risk For Small Business Entrepreneurs, Michelle M. Harner

Faculty Scholarship

Financial distress by definition threatens a company’s viability. Entrepreneurial and start-up entities are particularly vulnerable to this threat. Yet, much of the discussion following the recent recession focuses almost exclusively on financial institutions and “too-big-to-fail” entities. This essay re-examines lessons gleaned from the recession in the context of smaller, entrepreneurial entities. Specifically, it analyzes how small business entrepreneurs might invoke principles of enterprise risk management to mitigate the long-term impact of financial distress on their business models. It also considers related refinements to extant small business regulations, including the U.S. bankruptcy laws. The essay’s primary objective is to help policymakers, …

Activist Distressed Debtholders: The New Barbarians At The Gate?, Michelle M. Harner

Faculty Scholarship

The term “corporate raiders” previously struck fear in the hearts of corporate boards and management teams. It generally refers to investors who target undervalued, cash-flush or mismanaged companies and initiate a hostile takeover of the company. Corporate raiders earned their name in part because of their focus on value extraction, which could entail dismantling a company and selling off its crown jewels. Today, the term often conjures up images of Michael Milken, Henry Kravis or the movie character Gordon Gekko, but the alleged threat posed to companies by corporate raiders is less prevalent—at least with respect to the traditional use …

Committee Capture? An Empirical Analysis Of The Role Of Creditors' Committees In Business Reorganizations, Michelle M. Harner, Jamie Marincic

Faculty Scholarship

The number of businesses experiencing financial distress increased significantly during the past several years. The number of Chapter 11 reorganization cases likewise rose. And many of these business failures were spectacular, leaving little value for creditors and even less for shareholders. Consequently, how the business debtor’s limited asset pie is divided and who gets to allocate the pieces are very relevant and important questions.

The U.S. Bankruptcy Code generally contemplates the appointment of a committee of the debtors’ unsecured creditors to serve as a fiduciary for all general unsecured creditors and as a statutory watchdog over the debtor and its …