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90 Nw. U. L. Rev. 1684 (1995-1996)
Confirmation and Claims Trading

handle is hein.journals/illlr90 and id is 1702 raw text is: Copyright 1996 by Frederick ibng                            Printed in U.S.A.
Vol. 90. No. 4
CONFIRMATION AND CLAIMS TRADING
Frederick Tung*
I.  The  Context .............................................  1689
A. The Confirmation Process ........................... 1689
1.  Formal Rules  ....................................  1690
2. Bargaining over the Plan ........................ 1693
B.  Claims Trading  ......................................  1699
1. Incentives to Trade .............................. 1699
2. The Benefits of Trading ......................... 1701
3. Formalities and Restrictions on Claim Transfer.. 1703
C. Free Alienability of Claims ..................... ..... 1705
1. Historical Context: the Bankruptcy Act ......... 1707
a.  Chapter X  ....................................  1707
b.  Chapter XI ...................................  1710
2. Chapter 11 by Comparison ...................... 1712
II. Adverse Effects of Trading on the Confirmation
Process  ..................................................  1714
A. Collective Decisionmaking in Chapter 11 ........... 1715
B. Relationships, Cooperation, and the Shadow of
Claims Trading  ......................................  1718
1. Relationships in Chapter 11 ..................... 1718
2. Transaction Costs from Claims Trading .......... 1720
3. Cooperation in the Shadow of Claims Trading .. 1723
C. The Bankruptcy Investor ............................ 1726
III. The Case for Limiting Transferability of Claims ......... 1729
A. Claims and Prebankruptcy Entitlements ............ 1730
B. Claims and Markets ................................. 1735
C. Precedent under the Bankruptcy Code .............. 1740
1.  Section  105(a)  ...................................  1741
2. Allegheny: Good Faith under Section 1126(e) ... 1745
IV. A Modest Proposal: Equitable Relief from Adverse
Effects of Claims Trading ................................ 1748
A. The Trading Injunction Concept .................... 1749
* Associate Professor of Law, University of San Francisco School of Law. A.B. Cornell
University, 1983; J.D. Harvard University, 1987. I am grateful for the comments and suggestions
of Lynn LoPucki, Elizabeth Warren, Theodore Eisenberg, Lawrence King, Bernard Shapiro,
Harvey Miller, and Delos Putz, and for the diligent research assistance of Gary Nakata and
Miriam Khatiblou. Opinions, errors, and omissions remain mine alone. Research for this Arti-
cle was supported by a grant from the University of San Francisco School of Law.

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