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Abstract

This Article challenges the persistent claim that Chapter 11’s increasing utilization of market mechanisms will help facilitate economically efficient resolutions of corporate financial distress. Using two recent case studies, I show that, in fact, these mechanisms are used by stakeholders with existing market power to take control of the restructuring process and extract rents at the expense of other constituents: creditors, equity holders, and—in the case of companies that receive governmental bailouts—taxpayers. These distortionary effects are obscured by a dominant, neoclassical legal paradigm that ignores institutional and political dynamics. I advance a new explanatory model that draws upon modern social science to capture these otherwise-unexplored forces. This new model offers a template for law reform efforts aimed at improving market equality and allocating resources in commercial restructurings more rationally, contributing to an overall increase in social welfare.

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© 2013 Brigham Young University Law Review


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