IDEAS home Printed from https://ideas.repec.org/a/eee/irlaec/v48y2016icp50-58.html
   My bibliography  Save this article

Tax claims, government priority, absolute priority and the resolution of financial distress

Author

Listed:
  • Fisher, Timothy C.G.
  • Martel, Jocelyn
  • Gavious, Ilanit

Abstract

We present a model of an insolvent firm that may take advantage of a ‘soft-touch’ government creditor in order to buy time before filing for reorganization, behaviour we refer to as ‘claims substitution.’ Parameters in the model reflect the enforcement of absolute priority and government priority in bankruptcy. We show that deviations from absolute priority reduce the incentive for claims substitution. We also show that strict government priority is economically efficient. We discuss the implications of our findings for bankruptcy law reform, especially with respect to the priority of tax claims in bankruptcy and the enforcement of absolute priority.

Suggested Citation

  • Fisher, Timothy C.G. & Martel, Jocelyn & Gavious, Ilanit, 2016. "Tax claims, government priority, absolute priority and the resolution of financial distress," International Review of Law and Economics, Elsevier, vol. 48(C), pages 50-58.
  • Handle: RePEc:eee:irlaec:v:48:y:2016:i:c:p:50-58
    DOI: 10.1016/j.irle.2016.08.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0144818816300540
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lucian Arye Bebchuk, 2002. "Ex Ante Costs of Violating Absolute Priority in Bankruptcy," Journal of Finance, American Finance Association, vol. 57(1), pages 445-460, February.
    2. Bart Leyman, 2012. "The uneasy case for rehabilitating small firms under the 1997-reorganization law in Belgium: evidence from reorganization plans," European Journal of Law and Economics, Springer, vol. 34(3), pages 533-560, December.
    3. Acharya, Viral V. & Amihud, Yakov & Litov, Lubomir, 2011. "Creditor rights and corporate risk-taking," Journal of Financial Economics, Elsevier, vol. 102(1), pages 150-166, October.
    4. Fisher, Timothy C G & Martel, Jocelyn, 1995. "The Creditors' Financial Reorganization Decision: New Evidence from Canadian Data," Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 112-126, April.
    5. White, Michelle J, 1994. "Corporate Bankruptcy as a Filtering Device: Chapter 11 Reorganizations and Out-of-Court Debt Restructurings," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 268-295, October.
    6. Schwartz, Alan, 1997. "Contracting about Bankruptcy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(1), pages 127-146, April.
    7. Timothy C.G. Fisher & Jocelyn Martel, 2015. "Too much of a good thing? The impact of a new bankruptcy law in Canada," Finance, Presses universitaires de Grenoble, vol. 36(2), pages 37-66.
    8. Povel, Paul, 1999. "Optimal "Soft" or "Tough" Bankruptcy Procedures," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 659-684, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Tax claims; Government priority; Absolute priority; Financial distress;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:48:y:2016:i:c:p:50-58. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/irle .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.