Excerpt
March 2024, Paper: "Chapter 11 was widely viewed as a failure in the first decade of the Bankruptcy Code’s operation, the 1980s. Large firms were mired in bankruptcy for years; the process was seen as expensive, inaccurate, and subject to abuse. While basic bankruptcy still has its critics and few would say it works perfectly, the contrast with bankruptcy today is stark: bankruptcies that took years in the 1980s take months in the 2020s. Multiple changes explain bankruptcy’s success—creditor learning, statutory reform, better judging and lawyering, new techniques, fuller integration of the improved mechanisms that the 1978 Code added—and we do not challenge their relevance. But in our analysis, one major change is missing from the current understanding of bankruptcy’s success: bankruptcy courts and practice in the 1980s rejected market value; today bankruptcy courts and practice accept and use market value. This shift is a major explanation for bankruptcy’s success. It reduces opportunities for conflict in bankruptcy. It speeds up proceedings. It allows firms to be repositioned in market transactions. Deals among claimants and interests are more readily reached and the firm can ride through bankruptcy without the bankruptcy process materially scarring the enterprise."