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Efficient And Inefficient Debt Restructuring: A Comparative Analysis On Voting Rules In Workouts, Hyun Chul Lee
Efficient And Inefficient Debt Restructuring: A Comparative Analysis On Voting Rules In Workouts, Hyun Chul Lee
Hyun-Chul Lee
Two jurisdictions, Korea and America, have contrasting legal rules governing voting in workouts: Voting Mandating Rule and Voting Prohibition Rule. Voting in a bond workout has long been prohibited in the Trust Indenture Act of the United States. In stark contrast, Korea enacted a unique statute that mandated a voting scheme in workout in an effort to resolve corporate insolvencies crisis and incompetent bankruptcy institutions. Voting facilitates the completion of workouts, but it gives majority creditors an opportunity to disproportionately benefit from workouts. I explore the contrariness of the two seemingly unrelated statutes, and bring their respective implications for efficiency …
The Hidden Costs Of Private Benefits Of Control: Value Shift And Efficiency, Hyun-Chul Lee
The Hidden Costs Of Private Benefits Of Control: Value Shift And Efficiency, Hyun-Chul Lee
Hyun-Chul Lee
This paper relates the two regimes governing control transfer to the adverse impacts that private benefits of control have on IPOs. Merely the value-transfer nature of private benefits alone may stymie efficient IPOs because of the wedge between the discount for private benefits in pricing and what the initial owner will eventually capture. Irrelevance of the value-shift nature to the initial owner’s payoffs serves efficient IPOs. This paper shows separate mechanisms by which the two rules generate such wedge. The Market Rule allows increase in private benefits via control transfer, causing discount with maximum ceiling of private benefits. To offset …