Law Commons^™

The Case For Symmetry In Creditors' Rights, Richard Squire

Faculty Scholarship

Using an original framework for evaluating bankruptcy rules, this article casts doubt on the efficiency of legal arrangements that give some creditors an absolute advantage over others in the division of a debtor's assets. Such arrangements, which I classify as asymmetrical, are widely used in the modem economy, and include the secured loan, American general partnership, and guaranty contract. In contrast, symmetrical arrangements, which include the corporation and common law partnership, confer no absolute advantage, because they give each creditor group a prior claim to a distinct debtor asset pool. I demonstrate that symmetrical arrangements produce lower debt appraisal costs, …