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Creditor Control And Conflict In Chapter 11, Kenneth M. Ayotte, Edward R. Morrison
Creditor Control And Conflict In Chapter 11, Kenneth M. Ayotte, Edward R. Morrison
Faculty Scholarship
We analyze a sample of large privately and publicly held businesses that filed Chapter 11 bankruptcy petitions during 2001. We find pervasive creditor control. In contrast to traditional views of Chapter 11, equity holders and managers exercise little or no leverage during the reorganization process. 70 percent of CEOs are replaced in the two years before a bankruptcy filing, and few reorganization plans (at most 12 percent) deviate from the absolute priority rule to distribute value to equity holders. Senior lenders exercise significant control through stringent covenants, such as line-item budgets, in loans extended to firms in bankruptcy. Unsecured creditors …
Chrysler, Gm And The Future Of Chapter 11, Edward R. Morrison
Chrysler, Gm And The Future Of Chapter 11, Edward R. Morrison
Faculty Scholarship
Although they caused great controversy, the Chrysler and GM bankruptcies broke no new ground. They invoked procedures that are commonly observed in modern Chapter 11 reorganization cases. Government involvement did not distort the bankruptcy process; it instead exposed the reality that Chapter 11 offers secured creditors – especially those that supply financing during the bankruptcy case – control over the fate of distressed firms. Because the federal government supplied financing in the Chrysler and GM cases, it possessed the creditor control normally exercised by private lenders. The Treasury Department found itself with virtually the same, unchecked power that the FDIC …
Is The Bankruptcy Code An Adequate Mechanism For Resolving The Distress Of Systemically Important Institutions?, Edward R. Morrison
Is The Bankruptcy Code An Adequate Mechanism For Resolving The Distress Of Systemically Important Institutions?, Edward R. Morrison
Faculty Scholarship
The President and members of Congress are considering proposals that would give the government broad authority to rescue financial institutions whose failure might threaten market stability. These systemically important institutions include bank and insurance holding companies, investment banks, and other "large, highly leveraged, and interconnected" entities that are not currently subject to federal resolution authority. Interest in these proposals stems from the credit crisis, particularly the bankruptcy of Lehman Brothers. That bankruptcy, according to some observers, caused massive destabilization in credit markets for two reasons. First, market participants were surprised that the government would permit a massive market player to …