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The Economics of Bankruptcy Reform

Author

Listed:
  • Aghion, Philippe
  • Hart, Oliver
  • Moore, John

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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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Aghion, Philippe & Hart, Oliver & Moore, John, 1992. "The Economics of Bankruptcy Reform," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 523-546, October.
    • Handle: RePEc:oup:jleorg:v:8:y:1992:i:3:p:523-46
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    References listed on IDEAS

    as
    1. David M. Cutler & Lawrence H. Summers, 1988. "The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 157-172, Summer.
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    10. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
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