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The Economics of Bankruptcy Reform

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Author Info
Philippe Aghion
Oliver Hart
John Moore
Abstract

We propose a new bankruptcy procedure. Initially, a firm's debts are cancelled, and cash and non-cash bids are solicited for the "new" (all equity) firm. Former claimants are given shares, or options to buy shares, in the new firm on the basis of absolute priority. Options are exercised once the bids are in. Finally, a shareholder vote is taken to select one of the bids. In essence, our procedure is a variant on the U.S. Chapter 7, in which non-cash bids are possible; this allows for reorganization. We believe our scheme is superior to Chapter 11 since it is simpler, quicker, market-based, avoids conflicts, and places appropriate discipline on management.

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Publisher Info
Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0093.

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Date of creation: Aug 1992
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Handle: RePEc:cep:cepdps:dp0093

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  1. Cole, Rebel & Turk, Rima, 2007. "Legal origin, creditor protection and bank lending: Evidence from emerging markets," MPRA Paper 4713, University Library of Munich, Germany, revised 18 Mar 2008. [Downloadable!]
  2. Felipe Balmaceda & Ronald Fischer, 2006. "Performance of an economy with credit constraints, bankruptcy and labor inflexibility," Documentos de Trabajo 222, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  3. Alan Schwartz, . "A Normative Theory of Business Bankruptcy," American Law & Economics Association Annual Meetings 1037, American Law & Economics Association. [Downloadable!]
  4. Stefan Sundgren, 1998. "Does a Reorganization Law Improve the Efficiency of the Insolvency Law? The Finnish Experience," European Journal of Law and Economics, Springer, vol. 6(2), pages 177-198, September. [Downloadable!] (restricted)
  5. Buttwill, Klas & Wihlborg, Clas, 2005. "The Efficiency of the Bankruptcy Process. An International Comparison," Ratio Working Papers 65, The Ratio Institute. [Downloadable!]
  6. Lucian Bebchuk & Oliver Hart, 2001. "Takeover bids vs. Proxy Fights in Contests for Corporate Control," NBER Working Papers 8633, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Martin Cihák & Jörg Decressin, 2007. "The Case for a European Banking Charter," IMF Working Papers 07/173, International Monetary Fund. [Downloadable!]
  8. Wihlborg, Clas, 2002. "Insolvency and Debt Recovery Procedures in Economic Development: An Overview of African Law," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  9. Bebchuk, Lucian Arye & Hart, Oliver, 2001. "Takeover Bids versus Proxy Fights in Contests for Corporate Control," CEPR Discussion Papers 3073, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Baer, Herbert L. & Gray, Cheryl W., 1995. "Debt as a control device in transitional economies : the experiences of Hungary and Poland," Policy Research Working Paper Series 1480, The World Bank. [Downloadable!]
  11. Singh, Rupinder, 2000. "Bank Regulation, Compliance and Enforcement," BOFIT Discussion Papers 2/2000, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  12. Urs W. Birchler & Dominik Egli, 2003. "Ein neues Bankinsolvenzrecht für die Schweiz," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 125-154, June. [Downloadable!]
  13. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2006. "Debt Enforcement Around the World," NBER Working Papers 12807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. R. Fischer & C. Bonilla, 2004. "Endogenous Credit Constraints and Factor Market Rigidities: the case of Bankruptcy," Econometric Society 2004 Latin American Meetings 240, Econometric Society. [Downloadable!]
  15. Bebchuk, Lucian Arye, 2001. "Ex Ante Costs of Violating Absolute Priority in Bankruptcy," CEPR Discussion Papers 2914, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  16. Stanley D. Longhofer, 1994. "Bankruptcy rules and debt contracting: on the relative efficiency of absolute priority, proportionate priority, and first-come, first-served rules," Working Paper 9415, Federal Reserve Bank of Cleveland. [Downloadable!]
  17. Stanley D. Longhofer, 1998. "Beneficial "firm runs"," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 21-29. [Downloadable!]
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