Working Paper: NBER ID: w4097
Authors: Philippe Aghion; Oliver Hart; John Moore
Abstract: We propose a new bankruptcy procedure. Initially, a firm's debts are cancelled, and cash and non-cash bids are solicited for the 'new" (all-equity) firm. Former claimants are given shares, or options to buy shares, in the new firm on the basis of absolute priority. Options are exercised once the bids are in. Finally, a shareholder vote is taken to select one of the bids. In essence, our procedure is a variant on the U.S. Chapter 7, in which non-cash bids are possible; this allows for reorganization. We believe our scheme is superior to Chapter 11 since it is simpler, quicker, market-based, avoids conflicts, and places appropriate discipline on management.
Keywords: Bankruptcy; Reform; Eastern Europe
JEL Codes: K22; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proposed bankruptcy procedure (G33) | Improved outcomes for firms in bankruptcy (G33) |
| Proposed bankruptcy procedure (G33) | Avoidance of costly bargaining and legal fees (J52) |
| Avoidance of costly bargaining and legal fees (J52) | Efficiency of bankruptcy resolutions (G33) |
| Proposed bankruptcy procedure (G33) | Efficiency of bankruptcy resolutions (G33) |
| Proposed bankruptcy procedure (G33) | Better outcomes for creditors and the firm (G33) |
| Proposed bankruptcy procedure (G33) | Vote among shareholders (G34) |
| Vote among shareholders (G34) | Choice of the best bid (D44) |