Designed for Dynamism: Bankruptcy Process and the Limits of Reform

Abstract

For decades, debates about business bankruptcy have focused on its distributive effects and on the complexities of corporate valuation and control that it presents. Those issues, though important in themselves, should be distinguished from an equally crucial, yet more basic purpose of bankruptcy: to provide a process by which all issues involving a failed business can be investigated, crystallized, and resolved — before the bankruptcy proceedings end and the old entity ceases to exist. The rudimentary components of a bankruptcy process should include the openness to bring a wide range of potential issues into a transparent proceeding, the adaptability to arrange for efficient consideration of multilateral disputes, and the finality to allow all parties to go forward free of the uncertainties of their pre-bankruptcy dealings with the failed entity. This Article argues that these elements of a rudimentary bankruptcy process should be — but have not been — included in proposals for legal reform, including some of the Dodd-Frank reforms as well as the proposals by academics seeking to streamline and privatize much of bankruptcy.