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, this article shows 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. This article advances 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.
Diane Lourdes Dick,
The Chapter 11 Efficiency Fallacy, 2013 BYU L. REV. 759