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Lessons from a Comparison of U.S. and U.K. Insolvency Codes

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  • Franks, Julian R
  • Torous, Walter N

Abstract

The paper describes two insolvency codes, those of the United Kingdom and the United States, and appraises their efficiency using five criteria, including (1) premature and deferred liquidation, (2) adherence to the terms of the debt contract, (3) direct costs of insolvency, (4) over or under investment, (5) other stakeholders interests. The principles underlying the two systems differ in some fundamental respects. The main objective of Chapter 11 of the 1978 U.S. Bankruptcy Code is to maintain the business as a going concern, even if that reduces the proceeds available to creditors. As a result, the code has been deliberately designed to be highly debtor-oriented. In contrast, the main objective of the U.K. Code is the repayment of creditors' claims. As a result, the U.K. has had, at least prior to 1986, a highly debtor-oriented code. The paper examines the main features of each code which give rise to these assertions. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Franks, Julian R & Torous, Walter N, 1992. "Lessons from a Comparison of U.S. and U.K. Insolvency Codes," Oxford Review of Economic Policy, Oxford University Press, vol. 8(3), pages 70-82, Autumn.
  • Handle: RePEc:oup:oxford:v:8:y:1992:i:3:p:70-82
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    Cited by:

    1. Cornelli, Francesca & Felli, Leonardo, 1997. "Ex-ante efficiency of bankruptcy procedures," European Economic Review, Elsevier, vol. 41(3-5), pages 475-485, April.
    2. Longhofer, Stanley D., 1997. "Absolute Priority Rule Violations, Credit Rationing, and Efficiency," Journal of Financial Intermediation, Elsevier, vol. 6(3), pages 249-267, July.
    3. Ang, James S. & Fatemi, Ali M., 1997. "Personal bankruptcy costs: Their relevance and some estimates," Financial Services Review, Elsevier, vol. 6(2), pages 77-96.

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