Substantive Consolidation Today

Abstract

In large corporate reorganizations, bankruptcy judges often confirm plans of reorganization that call for "substantive consolidation" of the different corporate entities comprising the corporate group. Substantive consolidation allows the general creditors of the various entities to share in a common pool of assets; it often simplifies a reorganization and wins broad support among the creditors. Nevertheless, a statutory basis for the doctrine is hard to find, and the lower court practice is often at odds with the doctrine as spelled out in appellate court opinions. The emerging debate over the proper scope of substantive consolidation shows how much bankruptcy law remains a common-law discipline whose contours are shaped in the courtroom as well as in Congress.