The Decline of Unsecured Creditor and Shareholder Recoveries in Large Public Company Bankruptcies
![handle is hein.journals/ambank85 and id is 439 raw text is: The Decline of Unsecured Creditor
and Shareholder Recoveries in
Large Public Company
Bankruptcies
by
Andrew A. Wood*
I. INTRODUCTION
The legislative history of the United States Bankruptcy Code states:
The purpose of a business reorganization case, unlike a liqui-
dation case, is to restructure a business's financings so that it
may continue to operate, provide its employees with jobs,
pay it creditors, and produce a return for its stockhold-
ers . . . . It is more economically efficient to reorganize than
to liquidate, because it preserves jobs and assets.'
Eight years later, bankruptcy scholar Thomas H. Jackson proposed the Credi-
tor's Bargain Theory of bankruptcy reorganization almost diametrically op-
posed to that history. In Jackson's theory, the purpose was no longer to save
companies and jobs, but solely to serve the interests of the firm's owners-
by which he essentially meant its creditors.2 Jackson proposed that bank-
ruptcy law . . . should focus primarily on values, not rights.3 In the years that
followed, courts and scholars increasingly saw maximization of the distribu-
tions to creditors as the goal of reorganization.4
*J.D. 2011, UCLA School of Law. I thank Prof. Lynn LoPucki for guidance throughout; I thank Prof.
Joseph Doherty, Director of the UCLA School of Law Empirical Research Group, for assistance with
creating, running, and interpreting statistical tests on the data. I thank Doug Irion, manager of the UCLA-
LoPucki Bankruptcy Research Database, for assistance in finding and pulling schedules and statements of
financial affairs for the 1997-99 and 2009-10 cases.
H.R. REP. No. 95.595, at 220 (1977).
'THOMAS H. JACKSON, THE LOGIC AND LIMITs OF BANKRUPTCY LAW 14-19 (1986).
'Id. at 68.
'James H.M. Sprayregen, Jonathan Friedland & Roger J. Higgins, Chapter 11: Not Perfect, but Better
Than the Alternatives, 14 J. BANKR. L. & PRAc., no. 6, 2005, at 3 ([T]he ultimate goal ... [is] to
maximize creditor recoveries.); Metro. Creditors' Trust v. Pricewaterhousecoopers, LLP, 463 F. Supp. 2d
1193, 1200 (E.D. Wash. 2006) (referring to the purpose of Chapter 11 reorganization plans as being to
maximize distributions to the debtor's creditors).
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The Decline of Unsecured Creditor and Shareholder Recoveries in Large Public Company Bankruptcies
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