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The Economics of Bankruptcy Reform (Now published in Journal of Law, Economics and Organization, vol.8, no.3, (1992), pp. 523-546.)

Author

Listed:
  • 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 psossible; 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.

Suggested Citation

  • Philippe Aghion & Oliver Hart & John Moore, 1992. "The Economics of Bankruptcy Reform (Now published in Journal of Law, Economics and Organization, vol.8, no.3, (1992), pp. 523-546.)," STICERD - Theoretical Economics Paper Series 250, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stitep:250
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