Is Chapter 11 Bankrupt?

Abstract

This Article discusses the continuing contraction of business reorganization under the Bankruptcy Code. It argues that it is wrong to assume that there is no need for a business reorganization law in a modern, service-oriented economy that has well-developed capital markets. The Article first analyzes and contrasts bankruptcy law in the United States under the Chandler Act of 1938, which fostered the concept of reorganization and rehabilitation of distressed business entities, and under the Bankruptcy Reform Act of 1978, which built upon lessons learned under the Chandler Act and pursuant to which bankruptcy reorganization became an appropriate and necessary vehicle to preserve and protect the values of major business organizations. The Article then traces the economic, legal, political, and ideological changes that threaten the viability of corporate rehabilitation, including the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Finally, this Article responds directly to anti-Chapter 11 theorists, arguing: (1) reorganization remains relevant to preserving going-concern values in today's economy, (2) Chapter 11 has significant value as a transparent, neutral, multi-party forum to address the insolvency of a business, even when a marketplace exists for the debtor's assets, and (3) the privatization of the insolvency process is both unworkable and undesirable.