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The economics of bankruptcy reform

Aghion, P.; Hart, O.; Moore, J.; (1992) The economics of bankruptcy reform. (NBER Working Papers 4097). National Bureau of Economic Research: Cambridge, US. Green open access

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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.

Type:Working / discussion paper
Title:The economics of bankruptcy reform
Open access status:An open access version is available from UCL Discovery
Publisher version:http://www.nber.org/papers/w4097
UCL classification:UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics

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