The economics of bankruptcy reform PDF
Preview The economics of bankruptcy reform
Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium Member Libraries http://www.archive.org/details/economicsofbankrOOaghi 0©V£Y. THE ECONOMICS OF BANKRUPTCY REFORM Philippe Aghion Oliver Hart John Moore THE ECONOMICS OF BANKRUPTCY REFORM Philippe Aghion Oliver Hart John Moore No. 92-11 May 1992 M.IJ. LIBRARIES AUG 4 1992 REOuvfcO ww—— tm -.uij " n" THE ECONOMICS OF BANKRUPTCY REFORM by Philippe Aghion Oliver Hart John Moore February 1992 revised May 1992 t European Bank for Reconstruction and Development, London, and DELTA, Paris ft Massachusetts Institute of Technology ttt London School of Economics and Princeton Paper presented at NBER Conference on Transition in Eastern Europe, 26-29 February 1992. We thank Olivier Blanchard, Stuart Gllson, Leo Herzel, Bengt Holmstrom, John Kihn, Shan Li, Lynn LoPucki and Andrei Shleifer for their help and comments. We acknowledge financial support from the National Science Foundation; the Suntory-Toyota International Centre for Economics and Related Disciplines at the LSE; and the International Financial Services Research Center at MIT. 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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