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The economics of bankruptcy reform

Aghion, Philippe, Hart, Oliver and Moore, John (1992) The economics of bankruptcy reform. CEPDP, 93. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 1992 the authors
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 93
Date Deposited: 20 Aug 2008 15:38
URL: http://eprints.lse.ac.uk/21032/

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