Competitive Choice Theory and the Broader Implications of the Supreme Court's Analysis in Bank of America v. 203 North LaSalle Street Partnership

Business Lawyer

Volumn 54, Issue 4, 1999, Pages 1475-1555

  Brunstad Jr , G Eric ^a   Sigal, Mike ^b  

^a Bingham McCutchen LLP   (United States)

^b Simpson Thacher and Bartlett   (United States)

Author keywords

[No Author keywords available]

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EID: 0033419819     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (389)

1. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
2. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
3. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
4. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
5. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
6. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
7. For an example of the range of this debate, compare Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM. BANKR. L.J. 551 (1995) (arguing that the current Chapter 11 process is basically sound, and offering some modest suggestions for improvement), with Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 AM. BANKR. L.J. 573 (1995) (offering a broad critique of Chapter 11). See also Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 YALE L.J. 1043 (1992) (questioning the utility of Chapter 11); Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 YALE L.J. 437 (1992) (challenging Bradley and Rosenzweig's analysis and defending the Chapter 11 concept). See generally Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633 (1993) (arguing in favor of auctioning off the debtor's assets to avoid the unwarranted costs of reorganization); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic Cost School of Bankruptcy Theory: A Comment, 91 MICH. L. REV. 1773 (1993) (criticizing the critics of Bradley and Rosenzweig); David A. Skeel, Jr., Markets, Courts, and the Brave New World of Bankruptcy Theory, 1993 WIS. L. REV. 465 (1993) (surveying various academic proposals for the reform of Chapter 11). The business reorganization provisions of Chapter 11 of the Bankruptcy Code (Code) are codified at 11 U.S.C. §§ 1101-1146 (1994 & Supp. III 1997).
8. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
9. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
10. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
11. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
12. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
13. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
14. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
15. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
16. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
17. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
18. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
19. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
20. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
21. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for
22. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
23. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
24. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
25. See G. Eric Brunstad, Jr., Mike Sigal, & William H. Schorling, Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 BUS. LAW. 1381, 1403 n.122 (1998) (discussing the controversy). Among other things, this issue has inspired a fair amount of scholarly commentary. See Sara A. Austin, New Value Exception: (Wanted) Dead or Alive - Viability of the 'New Value' Exception to the Absolute Priority Rule under Bankruptcy Code § 1129(b)(2), 96 DICK. L. REV. 189, 206-07 (1992) (arguing that the Code does not necessarily preclude the new value doctrine); John D. Ayer, Rethinking Absolute Priority after Ahlers, 87 MICH. L. REV. 963, 1011-12 (1989) (questioning the validity of the new value rule); Douglas G. Baird, Bankruptcy's Uncontested Axioms, 108 YALE L.J. 573, 584-86 (1998) (discussing the new value debate); Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. CHI. L. REV. 738, 787-89 (1988) (criticizing the absolute priority rule, and corporate reorganization law generally); Michelle Craig, The New Value Exception: A Plea for Modification or Elimination, 11 BANKR. DEV. J. 781, 812-13 (1995) (arguing that the purpose underlying the new value exception is "debtor assistance" and suggesting a simplified version of the rule); Richard Epling, The New Value Exception: Is There a Practical, Workable Solution?, 8 BANKR. DEV. J. 335, 337-38 (1992) (urging competitive bidding and competing plans); Julie L. Friedberg, Wanted Dead or Alive: The New Value Exception to the Absolute Priority Rule, 66 TEMP. L. REV. 893, 908-14 (1993) (arguing that the new value exception did not survive enactment of the Bankruptcy Code); Nicholas L. Georgakopoulos, New Value, Fresh Start, 3 STAN. J. OF L. BUS. & FIN. 125, 128 (1997) (arguing in favor of a new value exception); Kenneth N. Klee, Cram Down II, 64 AM. BANKR. L.J. 229, 240-44 (1990) (discussing the new value exception and arguing that "[t]he issue should not be the survival of the new value exception but its application."); Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 STAN. L. REV. 69, 123-24 (1991) (arguing in favor of permitting competing plans of reorganization to foster bidding over the debtor's new equity interests); Anthony L. Miscioscia, The Bankruptcy Code and the New Value Doctrine: An Examination into History, Illusions, and the Need for Competitive Bidding, 79 VA. L. REV. 917, 956-58 (1993) (arguing in favor of a new value corollary that includes competitive bidding procedures); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 EMORY L.J. 1009, 1082-84 (1987) (arguing in favor of a flexible rule of loss allocation); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 PEPP. L. REV. 1311, 1336 (1992) (arguing in favor of a new value exception); Alan Schwartz, The Absolute Priority Rule and the Firm's Investment Policy, 72 WASH. U. L.Q. 1213, 1214 (1994) (suggesting that permitting new value plans may do more harm than good); David A. Skeel, The Uncertain State of an Unstated Rule: Bankruptcy's Contribution Rule after Ahlers, 63 AM. BANKR. L.J. 221, 247 (1989) (arguing against a new value contribution rule); Elizabeth Warren, A Theory of Absolute Priority, 1990 ANN. SURV. AM. L. 9, 47-48 (1990) (conceptualizing the confirmation of a plan as an asset sale and arguing in favor of a new value rule in order to maximize the value of the debtor's bankruptcy estate); James J. White, Absolute Priority and New Value, 8 COOLEY L. REV. 1, 31 (1991) (arguing against a new value exception).
26. See 11 U.S.C. § 1129(b)(2)(B)(ii) (providing that a Chapter 11 plan is not "fair and equitable," and therefore cannot be confirmed over the objection of a class of unsecured impaired claims, unless, among other things, "the holder of any claim or interest that is junior to the claims of such [impaired unsecured] class will not receive or retain under the plan on account of such junior claim or interest any property"); Brunstad, Sigal & Schorling, supra note 2, at 1406-11 (discussing the absolute priority rule and its origins); see also infra notes 78-84 and accompanying text (discussing the absolute priority rule). The phrase "absolute priority rule" was apparently coined in James C. Bonbright & Milton M. Bergerman, Two Rival Theories of Priority Rights of Security Holders in a Corporation Reorganization, 18 COLUM. L. REV. 127 (1928).
27. See Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 121 (1939) (stating that "[w]here . . . necessity exists and the old stockholders make a fresh contribution and receive in return a participation reasonably equivalent to their contribution, no objection can be made"); Brunstad, Sigal & Schorling, supra note 2, at 1408 (observing that, under the former Bankruptcy Act, the absolute priority rule "was not intended as an absolute prohibition denying preexisting equity holders from contributing new capital to the reorganization effort in exchange for a stake in the new enterprise.").
28. Bankruptcy Act of 1898, ch. 541, 30 Stat. 544 (1898) (repealed 1979).
29. 11 U.S.C. §§ 101-1330 (1999).
30. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202-03 (1988) (referring to an "exception" or "modification" of absolute priority based on the contribution of new value); In re Ambanc La Mesa Ltd. Partnership, 115 F.3d 650, 654 (9th Cir. 1997) (recognizing the new value doctrine in a case under the Code); Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership), 2 F.3d 899, 906 (9th Cir. 1993) (same), cert. granted, 510 U.S. 1039, and case dismissed as moot, 513 U.S. 18 (1994); Klee, supra note 2, at 240 (1990) (discussing the new value exception); Markell, supra note 2, at 71 (same); Rusch, supra note 2, at 1312 (same); Warren, supra note 2, at 42 (referring to a new value corollary). As developed by the courts, the new value doctrine requires that, in order for old equity holders to acquire new equity interests over the objection of creditors, their contributions of capital must be: (i) new, (ii) substantial, (iii) money or moneys' worth, (iv) necessary to the reorganization, and (v) reasonably equivalent to the value of the new equity interests received. See In re Woodbrook Assocs., 19 F.3d 312, 319-20 (7th Cir. 1994) (discussing these requirements); Bonner Mall, 2 F.3d at 908 (same); Brunstad, Sigal & Schorling, supra note 2, at 1409-10 (same). These five requirements are discussed in greater detail in infra notes 252-313 and accompanying text.
31. See Brunstad, Sigal & Schorling, supra note 2, at 1409-10 & nn. 155-60 (discussing some aspects of the continuing controversy over the new value doctrine); J. Ronald Trost et al., Survey of the New Value Exception to the Absolute Priority Rule and the Preliminary Problem of Classification (Apr. 4, 1997) (on file with The Business Lawyer, University of Maryland School of Law) (surveying different interpretations of the rule and its elements). Compare Ambanc La Mesa, 115 F.3d at 654 (holding that the new value doctrine is viable under the Code); Bonner Mall, 2 F.3d at 906 (same), with Phoenix Mutual Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 948 F.2d 134, 142-44 (5th Cir. 1991) (concluding that the new value doctrine did not survive the enactment of the Code), modified, 995 F.2d 1274 (5th Cir.), cert. denied, 506 U.S. 821 (1992); In re Drimmel, 135 B.R. 410, 415 (D. Kan. 1991) (same), aff'd sub nom Unruh v. Rushville State Bank, 987 F.2d 1506 (10th Cir. 1993); In re Lumber Exchange Ltd. Partnership, 125 B.R. 1000, 1009 (Bankr. D. Minn.) (same), aff'd on other grounds, 134 B.R. 354 (D. Minn. 1991), aff'd, 968 F.2d 647 (8th Cir. 1992); In re Winters, 99 B.R. 658, 663 (Bankr. W.D. Pa. 1989) (same). See also infra notes 253-307 and accompanying text (discussing disagreements over the elements of the new value doctrine).
32. 119 S. Ct. 1411 (1999) [hereinafter LaSalle].
33. See id. at 1415, 1422.
34. See id. at 1422. This is the second time that the Court has assumed but not decided that the doctrine remains viable under the Code. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 203 n.3 (1988). Many lower courts have done the same. See Coltex Loop Central Three Partners, L.P. v. BT/SAP Pool C Assocs. (In re Coltex Loop Central Three Partners, L.P.), 138 F.3d 39, 44 (2d Cir. 1998); In re Snyder, 967 F.2d 1126, 1130-31 (7th Cir. 1992); Travelers Ins. Co. v. Bryson Properties, XVIII (In re Bryson Properties, XVIII), 961 F.2d. 496, 505 (4th Cir. 1992); In re Stegall, 865 F.2d 140, 142 (7th Cir. 1989); In re Blankemeyer, 861 F.2d 192, 194 (8th Cir. 1988).
35. See LaSalle, 119 S. Ct. at 1423-24.
36. See id.
37. See id. at 1423.
38. See id. at 1424 n.28 (quoting Brunstad, Sigal & Schorling, supra note 2, at 1406 n.136). As we explained in our previous article: [T]he voting rules of chapter 11 represent a stark departure from the requirements of Chapter X of the Bankruptcy Act. To a large degree, the highly rigid structure of Chapter X, and the often dominant role afforded the Securities and Exchange Commission (SEC), were predicated upon the conviction that reorganization cases were primarily administrative problems of business and finance suitable for governmental intervention on behalf of the public interest. See Jerome Frank, Epithetical Jurisprudence and the Work of the Securities and Exchange Commission in the Administration of Chapter X of the Bankruptcy Act, 18 N.Y.U. L.Q. Rev. 317, 317 (1941) ("[R]eorganization is only in its superficial aspects litigation inter partis and that fundamentally it is an administrative problem of business and finance."). This approach, however, was rejected in formulating the Bankruptcy Code. See 124 CONG. REC. H11,101 (daily ed. Sept. 28, 1978); 124 CONG. REC. S17,417-18 (daily ed. Oct. 6, 1978) ("Chapter X was designed to impose rigid and formalized procedures upon the reorganization of corporations and, although designed to protect public creditors, has often worked to the detriment of such creditors."). Instead, Congress adopted the view that creditors and equity security holders are very often better judges of the debtor's economic viability and their own economic self-interest than courts, trustees, or the SEC. Hence, in contrast to Chapter X, Chapter 11 represents something more of a private model of reorganization. Consistent with this new approach, the Chapter 11 process relies on creditors and equity holders to engage in negotiations toward resolution of their interests, either directly or through their representatives. See Rosyln Sav. Bank v. Comcoach Corp. (In re Comcoach Corp.), 698 F.2d 571, 573 (2d Cir. 1983). Consistent with the principle of self-determination, the preferences of creditors may be overturned only to the extent they can be shown to be objectively unreasonable. Brunstad, Sigal & Schorling, supra note 2, at 1405-06 n.136; see also infra note 164 (providing further discussion of Chapter X and reorganization procedures under the Bankruptcy Act).
39. See id. at 1424 n.28 (quoting Brunstad, Sigal & Schorling, supra note 2, at 1406 n.136). As we explained in our previous article: [T]he voting rules of chapter 11 represent a stark departure from the requirements of Chapter X of the Bankruptcy Act. To a large degree, the highly rigid structure of Chapter X, and the often dominant role afforded the Securities and Exchange Commission (SEC), were predicated upon the conviction that reorganization cases were primarily administrative problems of business and finance suitable for governmental intervention on behalf of the public interest. See Jerome Frank, Epithetical Jurisprudence and the Work of the Securities and Exchange Commission in the Administration of Chapter X of the Bankruptcy Act, 18 N.Y.U. L.Q. Rev. 317, 317 (1941) ("[R]eorganization is only in its superficial aspects litigation inter partis and that fundamentally it is an administrative problem of business and finance."). This approach, however, was rejected in formulating the Bankruptcy Code. See 124 CONG. REC. H11,101 (daily ed. Sept. 28, 1978); 124 CONG. REC. S17,417-18 (daily ed. Oct. 6, 1978) ("Chapter X was designed to impose rigid and formalized procedures upon the reorganization of corporations and, although designed to protect public creditors, has often worked to the detriment of such creditors."). Instead, Congress adopted the view that creditors and equity security holders are very often better judges of the debtor's economic viability and their own economic self-interest than courts, trustees, or the SEC. Hence, in contrast to Chapter X, Chapter 11 represents something more of a private model of reorganization. Consistent with this new approach, the Chapter 11 process relies on creditors and equity holders to engage in negotiations toward resolution of their interests, either directly or through their representatives. See Rosyln Sav. Bank v. Comcoach Corp. (In re Comcoach Corp.), 698 F.2d 571, 573 (2d Cir. 1983). Consistent with the principle of self-determination, the preferences of creditors may be overturned only to the extent they can be shown to be objectively unreasonable. Brunstad, Sigal & Schorling, supra note 2, at 1405-06 n.136; see also infra note 164 (providing further discussion of Chapter X and reorganization procedures under the Bankruptcy Act).
40. See id. at 1424 n.28 (quoting Brunstad, Sigal & Schorling, supra note 2, at 1406 n.136). As we explained in our previous article: [T]he voting rules of chapter 11 represent a stark departure from the requirements of Chapter X of the Bankruptcy Act. To a large degree, the highly rigid structure of Chapter X, and the often dominant role afforded the Securities and Exchange Commission (SEC), were predicated upon the conviction that reorganization cases were primarily administrative problems of business and finance suitable for governmental intervention on behalf of the public interest. See Jerome Frank, Epithetical Jurisprudence and the Work of the Securities and Exchange Commission in the Administration of Chapter X of the Bankruptcy Act, 18 N.Y.U. L.Q. Rev. 317, 317 (1941) ("[R]eorganization is only in its superficial aspects litigation inter partis and that fundamentally it is an administrative problem of business and finance."). This approach, however, was rejected in formulating the Bankruptcy Code. See 124 CONG. REC. H11,101 (daily ed. Sept. 28, 1978); 124 CONG. REC. S17,417-18 (daily ed. Oct. 6, 1978) ("Chapter X was designed to impose rigid and formalized procedures upon the reorganization of corporations and, although designed to protect public creditors, has often worked to the detriment of such creditors."). Instead, Congress adopted the view that creditors and equity security holders are very often better judges of the debtor's economic viability and their own economic self-interest than courts, trustees, or the SEC. Hence, in contrast to Chapter X, Chapter 11 represents something more of a private model of reorganization. Consistent with this new approach, the Chapter 11 process relies on creditors and equity holders to engage in negotiations toward resolution of their interests, either directly or through their representatives. See Rosyln Sav. Bank v. Comcoach Corp. (In re Comcoach Corp.), 698 F.2d 571, 573 (2d Cir. 1983). Consistent with the principle of self-determination, the preferences of creditors may be overturned only to the extent they can be shown to be objectively unreasonable. Brunstad, Sigal & Schorling, supra note 2, at 1405-06 n.136; see also infra note 164 (providing further discussion of Chapter X and reorganization procedures under the Bankruptcy Act).
41. Brunstad, Sigal & Schorling, supra note 2, at 1423-24.
42. The Court's holding is expressed in the following terms: Whether a market test would require an opportunity to offer competing plans or would be satisfied by a right to bid for the same interest sought by old equity, is a question we do not decide here. It is enough to say, assuming a new value corollary, that plans providing junior interest holders with exclusive opportunities free from competition and without benefit of market valuation fall within the prohibition of § 1129(b)(2)(B)(ii). Id. at 1424 (emphasis added). The concurring opinion in LaSalle adopts the view that the Court's statements on competitive choice, market valuations, and self-determination are dicta. See id. at 1425 (Thomas, J., concurring) (stating that the Court's "speculations about the desirability of a 'market test' . . . are dicta"). Dicta, however, is commonly understood to encompass commentary unnecessary to a court's holding. See In re Permian Basin Area Rate Cases, 390 U.S. 627, 775 (1968) (stating that imprecise comment on a matter not at issue before the Court in a prior decision was dictum); BLACK'S LAW DICTIONARY 409 (5th ed. 1979) (stating that "[d]icta are opinions of a judge which do not embody the resolution or determination of the court"). In this instance, the Court's conclusion establishes in clear terms that it was the absence of competitive choice and a market valuation that doomed the debtor's plan. Although it may be true that the Court could have reached its decision on narrower grounds (as the two concurring justices would have preferred), the Court did not choose that route, and its holding is not diminished by the observation that some alternative holding could have been selected, but was not. Cf. Woods v. Interstate Realty Co., 337 U.S. 535, 537 (1949) (stating that "where a decision rests on two or more grounds, none can be relegated to the category of obiter dictum"); United States v. Title Ins. & Trust Co., 265 U.S. 472, 486 (1924) (stating that "where there are two grounds upon either of which an appellate court may rest its decision, and it adopts both, 'the ruling on neither is obiter, but each is the judgment of the court, and of equal validity with the other' ") (citations omitted); Dragor Shipping Corp. v. Union Tank Car Co., 371 F.2d 722, 726 (9th Cir. 1967) (same).
43. For an example of this traditional view of bankruptcy law, see Harvey R. Miller, The Changing Face of Chapter 11: A Reemergence of the Bankruptcy Judge as Producer, Director, and Sometimes Star of the Reorganization Passion Play, 69 AM. BANKR. L.J. 431 (Fall 1995) (extolling the basic virtues of Chapter 11 and offering some limited criticisms). For a critique of the traditional view, see Baird, supra note 2 (examining the traditional view); James J. White, Harvey's Silence, 69 AM. BANKR. L.J. 467 (1995) (offering a highly critical view of Miller's perspective and the Chapter 11 process); see also infra notes 173, 176, 240 and accompanying text (discussing different views on the role of the bankruptcy court).
44. For an example of this traditional view of bankruptcy law, see Harvey R. Miller, The Changing Face of Chapter 11: A Reemergence of the Bankruptcy Judge as Producer, Director, and Sometimes Star of the Reorganization Passion Play, 69 AM. BANKR. L.J. 431 (Fall 1995) (extolling the basic virtues of Chapter 11 and offering some limited criticisms). For a critique of the traditional view, see Baird, supra note 2 (examining the traditional view); James J. White, Harvey's Silence, 69 AM. BANKR. L.J. 467 (1995) (offering a highly critical view of Miller's perspective and the Chapter 11 process); see also infra notes 173, 176, 240 and accompanying text (discussing different views on the role of the bankruptcy court).
45. More precisely, laws strive to prevent certain kinds of behaviors or choices that generate harmful effects. Ideally, of course, the costs of the relevant rules should be no greater than the costs of the effects that the rules seek to avoid. In many instances, however, the relevant costs may be quite difficult to ascertain. In any event, legal regulation should at least aim to reduce the sum of the costs of the relevant harmful effects and the costs of avoiding these effects. See GUIDO CALABRESI, THE COSTS OF ACCIDENTS: A LEGAL AND ECONOMIC ANALYSIS 26 (1970) (stating that "I take it as axiomatic that the principal function of accident law is to reduce the sum of the costs of accidents and the costs of avoiding accidents.").
46. See Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393, 1404 (1985) (stating that "[n]ot only the American law of contracts, but also much of American society in general, is structured around the premise that individuals should for the most part have the freedom to order their own affairs as they please, because rational, self-interested actors will tend to make decisions that maximize their own utility"); see also ANTHONY T. KRONMAN AND RICHARD POSNER, THE ECONOMICS OF CONTRACT LAW 1-7 (1979) (arguing that bilateral exchange pursuant to voluntary agreements tends to transfer resources to their highest and best uses); infra notes 194-95 and accompanying text (discussing this point).
47. See Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393, 1404 (1985) (stating that "[n]ot only the American law of contracts, but also much of American society in general, is structured around the premise that individuals should for the most part have the freedom to order their own affairs as they please, because rational, self- interested actors will tend to make decisions that maximize their own utility"); see also ANTHONY T. KRONMAN AND RICHARD POSNER, THE ECONOMICS OF CONTRACT LAW 1-7 (1979) (arguing that bilateral exchange pursuant to voluntary agreements tends to transfer resources to their highest and best uses); infra notes 194-95 and accompanying text (discussing this point).
48. For a more comprehensive discussion of the unique difficulties that arise from a firm's insolvency, which in turn explain the need for some form of bankruptcy law, see G. Eric Brunstad, Jr., Bankruptcy and the Problems of Economic Futility: A Theory on the Unique Role of Bankruptcy Law (May 28, 1999) (unpublished manuscript, on file with The Business Lawyer, University of Maryland School of Law).
49. See infra notes 194-214 and accompanying text.
50. See infra notes 215-27 and accompanying text.
51. See infra notes 60-68 and accompanying text (discussing the Chapter 11 voting provisions).
52. See infra notes 171-87 and accompanying text (discussing two prevailing views on bankruptcy law).
53. See LaSalle, 119 S. Ct. 1411, 1420 (1999) (stating that the "two recognized policies underlying Chapter 11 [are] preserving going concerns and maximizing property available to satisfy creditors"). The Court's view of the twin purposes of bankruptcy law has numerous supporting antecedents. To begin with, the legislative history succinctly provides: "The purpose of a business reorganization case, unlike a liquidation case, is to restructure a business's finances so that it may continue to operate . . . ." H.R. REP. NO. 595, at 220 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6179; see also Toibb v. Radloff, 501 U.S. 157, 163 (1991) (recognizing "that Chapter 11 also embodies the general Code policy of maximizing the value of the bankruptcy estate"); NLRB v. Bildisco & Bildisco, 465 U.S. 513, 527 (1983) (stating that "the policy of Chapter 11 is to permit successful rehabilitation of debtors"); United States v. Whiting Pools, Inc., 462 U.S. 198, 203 (1983) (stating that "Congress presumed that the assets of the debtor would be more valuable if used in a rehabilitated business than if 'sold for scrap' ") (quoting H.R. REP. NO. 95-595, at 220 (1977)); Case v. Los Angeles Lumber Prods. Co., Ltd., 308 U.S. 106, 119 n.14 (1939) (stating that " '[t]he preservation of business enterprises must not be at the expense of creditors' ") (citation omitted). As explained by the Fifth Circuit: "A principal goal of the reorganization provisions of the Bankruptcy Code is to benefit the creditors of the chapter 11 debtor by preserving going-concern values and thereby enhancing the amounts recovered by all creditors." United Savings Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood Forest Assocs., Ltd.), 808 F.2d 363, 373 (5th Cir. 1987) (en banc), aff'd, 484 U.S. 365 (1988). Significantly, the purpose of maximizing the value of the debtor's bankruptcy estate is not new to Chapter 11. For example, section 77B of the Act of 1898, 11 U.S.C. § 205 (1934) (repealed 1938), which permitted corporate reorganizations, was premised on the same purpose. See Los Angeles Lumber Products Co., 308 U.S. at 124 (stating that "[o]ne of the purposes of § 77B was to avoid the consequences to debtors and creditors of foreclosures, liquidations, and forced sales with their drastic deflationary effects").
54. See infra notes 231-33 and accompanying text.
55. See Butner v. United States, 440 U.S. 48, 55 (1979) (stating that "[p]roperty interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving 'a windfall merely by reason of the happenstance of bankruptcy'.") (quoting Lewis v. Manufacturers Nat'l Bank, 364 U.S. 603, 609 (1961)); Baird, supra note 2, at 578 & 590-92 (discussing the interplay between bankruptcy law and nonbankruptcy law, and arguing that inconsistent approaches "may do more harm than good, even for the particular group one is trying to protect."); Douglas G. Baird, Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren, 54 U. CHI. L. REV. 815, 824-28 (1987) (identifying the problem of "forum shopping" that arises from the creation of a bankruptcy law system that adopts distributional rules and methods that differ from non-bankruptcy rules); THOMAS H. JACKSON, THE LOGIC AND LIMITS OF BANKRUPTCY LAW 21-27 (1986) (same).
56. See Butner v. United States, 440 U.S. 48, 55 (1979) (stating that "[p]roperty interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving 'a windfall merely by reason of the happenstance of bankruptcy'.") (quoting Lewis v. Manufacturers Nat'l Bank, 364 U.S. 603, 609 (1961)); Baird, supra note 2, at 578 & 590-92 (discussing the interplay between bankruptcy law and nonbankruptcy law, and arguing that inconsistent approaches "may do more harm than good, even for the particular group one is trying to protect."); Douglas G. Baird, Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren, 54 U. CHI. L. REV. 815, 824-28 (1987) (identifying the problem of "forum shopping" that arises from the creation of a bankruptcy law system that adopts distributional rules and methods that differ from non- bankruptcy rules); THOMAS H. JACKSON, THE LOGIC AND LIMITS OF BANKRUPTCY LAW 21-27 (1986) (same).
57. See infra notes 234-38 and accompanying text.
58. This does not mean, of course, that the bankruptcy judge has no role in the bankruptcy process, or even with respect to certain valuation questions. See 11 U.S.C. § 506(a) (1994) (requiring judicial valuation in the determination of secured claims); Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 525-26 (1941) (requiring a valuation of the debtor's business as a going concern based on capitalization of earnings to determine relative values for purposes of evaluating compliance with absolute priority); infra note 311 (discussing valuation standards in the Chapter 11 context). It does mean, however, that the relevant functions of bankruptcy law should be market-tested wherever possible.
59. See infra notes 111 & 229 (providing examples of how bankruptcy law alters general commercial rights). See generally United States v. Energy Resources Co., Inc., 495 U.S. 545, 549 (1990) (stating that "bankruptcy courts, as courts of equity, have broad authority to modify creditor-debtor relationships"); Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71 (1982) (Brennan, J., plurality opinion) (observing that "the restructuring of debtor-creditor relations . . . is at the core of the federal bankruptcy power"); Ashton v. Cameron County Water Improvement Dist. No. One, 298 U.S. 513, 530 (1936) (stating that "[t]he especial purpose of all bankruptcy legislation is to interfere with the relations between the parties concerned - to change, modify or impair the obligations of their contracts").
60. See infra notes 239-41 and accompanying text.
61. See LaSalle, 119 S. Ct. at 1423-24.
62. See infra note 180 (discussing the general disarray of the current jurisprudence).
63. See infra notes 242-43 and accompanying text.
64. See infra notes 138-39 and accompanying text.
65. In general, the plain meaning rule embraces the principle that, in the absence of textual ambiguity, the words of a statute are to be applied as they are written. See Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (observing that "[w]e have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there"); Caminetti v. United States, 242 U.S. 470, 485 (1917) (stating that "[i]t is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain, and if the law is within the constitutional authority of the law-making body which passed it, the sole function of the courts is to enforce it according to its terms. . . . Where the language is plain and admits of no more than one meaning the duty of interpretation does not arise, and the rules which are to aid doubtful meanings need no discussion."). Of course, if the statute in question is ambiguous, the rule has no application. Moreover, the existence of textual ambiguity may often lie in the eyes of the beholder, as the Court has found in several bankruptcy cases. See United States v. Monia, 317 U.S. 424, 431 (1943) (Frankfurter, J., dissenting) (stating that "[t]he notion that because the words of a statute are plain, its meaning is also plain, is merely pernicious oversimplification"). Compare Dewsnup v. Timm, 502 U.S. 410, 416 (1992) (concluding that § 506(d) of the Code is ambiguous), with id. at 420 (Scalia, J., dissenting) (arguing that section 506(d) is not ambiguous); compare United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989) (concluding that section 506(b)'s provision for interest on oversecured claims is clear), with id. at 249-51 (O'Connor, J., dissenting) (concluding that section 506(b) is not clear on this point). In addition, the plain meaning rule embraces a number of exceptions and corollaries. First, the plain meaning of a statute will yield if it produces a result demonstrably at odds with the intention of the law's drafters. See Ron Pair Enters., 489 U.S. at 242 (stating that "[t]he plain meaning of legislation should be conclusive, except in the 'rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intention of its drafters' ") (citations omitted). Second, a statute that references a preexisting judicial doctrine will ordinarily be interpreted in a manner consistent with that doctrine. See United States v. Noland, 517 U.S. 535, 539 (1996) (stating the rule that, when Congress enacts a statute that makes reference to a preexisting, judicially created doctrine, the reference "clearly indicates congressional intent at least to start with existing doctrine"); see also Midlantic Nat'l Bank v. New Jersey Dept. of Envtl. Protection, 474 U.S. 494, 501 (1985) (stating in a bankruptcy case that "[t]he normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific"). Third, individual statutes enacted as part of a larger regulatory scheme should be interpreted in a fashion consistent with the scheme as a whole, as well as its larger purposes. See United States Nat'l Bank v. Independent Ins. Agents of Am., Inc., 508 U.S. 439, 455 (1993) (stating that "[o]ver and over we have stressed that '[i]n expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law and to its object and policy' ") (citations omitted); Duparquet Huot & Moneuse Co. v. Evans, 297 U.S. 216, 218 (1935) (stating that "[t]o fix the meaning of these provisions [of the Bankruptcy Act] there is need to keep in view the background of their history. There is need to keep in view also the structure of the statute, and the relation, physical and logical, between its several parts."). There are additional exceptions and corollaries. See generally G. Eric Brunstad, Jr., Appeals of Remand Orders in Bankruptcy: Limiting Litigation over Where To Litigate and some Lessons on Statutory Construction, 5 J. BANKR. L. & PRAC. 323, 339-43 (1996) (discussing application of the plain meaning doctrine in the bankruptcy context).
66. See infra notes 171-74 (discussing various political perspectives on bankruptcy law).
67. See supra note 1; infra notes 171-79 (citing the general debate on the merits of the Chapter 11 process).
68. See infra notes 44-170 and accompanying text.
69. See infra notes 171-243 and accompanying text.
70. See infra notes 244-323 and accompanying text.
71. Analytically, our approach thus proceeds in the following essential steps. First, we hypothesize a general theory on how Chapter 11 ought to be interpreted (i.e., our theory of competitive choice). Second, undergirding our theory, we identify certain kinds of harmful effects generated by a firm's insolvency that explain something of the need for the regulation of business reorganizations in bankruptcy. See infra notes 194-227 and accompanying text (supplying this analysis). Third, we apply our theory of competitive choice to flesh out the details of the new value doctrine. See infra notes 250-313 and accompanying text (conducting this examination). Along the way, we contextualize the discussion by explaining in some detail the historical origins and applications of the doctrine and the absolute priority rule, and also the Chapter 11 plan formulation and confirmation processes. See infra notes 78-167 and accompanying text (explaining the relevant rules and procedures). We also examine the elements of the new value doctrine in light of the majority's observations in LaSalle. See infra notes 250-313 and accompanying text (conducting this examination). Our approach thus follows a well-beaten path: Scholars first formulate a tentative hypothesis to explain a phenomenon. In formulating the hypothesis, they use the facts they know, though these may be known only from casual observation or second hand. Then they test the tentative hypothesis against observation, refining or abandoning it as the facts dictate. Coming to the 'real world' without a hypothesis yields only confusion because then a scholar has no way to choose, from among the countless facts that exist, those facts that could help to explain the phenomenon under study. A hypothesis provides a basis for focusing on what in the real world is relevant. . . . The actual process of hypothesis formulation is sometimes misunderstood because the world seems meaningful yet people seldom explicitly formulate hypotheses to explain it. The cognitive psychologists teach, however, that everyone uses heuristics to classify phenomena, although only some are aware of doing so. Scholars must be among this later group. Thomas H. Jackson & Alan Schwartz, Vacuum of Fact or Vacuous Theory: A Reply to Professor Kripke, 133 U. PENN. L. REV. 987, 991 (1985); see also Ronald H. Coase, Industrial Organization: A Proposal for Research, reprinted in THE FIRM, THE MARKET AND THE LAW 62 (1988) (arguing that theory is an essential illuminating element useful to achieve an understanding of complex phenomenon). Significantly, we do not focus our attention in this Article on the larger question of whether Chapter 11 provides an efficient means to reorganize business enterprises, or whether Chapter 11 should be amended or replaced by some other alternative procedure. See supra note 1 (surveying some of the literature examining the merits of Chapter 11). Rather, assuming without concluding that the current Chapter 11 process is efficient, our approach is intended to offer a better method of interpreting the rules of the process in a coherent way.
72. Analytically, our approach thus proceeds in the following essential steps. First, we hypothesize a general theory on how Chapter 11 ought to be interpreted (i.e., our theory of competitive choice). Second, undergirding our theory, we identify certain kinds of harmful effects generated by a firm's insolvency that explain something of the need for the regulation of business reorganizations in bankruptcy. See infra notes 194-227 and accompanying text (supplying this analysis). Third, we apply our theory of competitive choice to flesh out the details of the new value doctrine. See infra notes 250-313 and accompanying text (conducting this examination). Along the way, we contextualize the discussion by explaining in some detail the historical origins and applications of the doctrine and the absolute priority rule, and also the Chapter 11 plan formulation and confirmation processes. See infra notes 78-167 and accompanying text (explaining the relevant rules and procedures). We also examine the elements of the new value doctrine in light of the majority's observations in LaSalle. See infra notes 250-313 and accompanying text (conducting this examination). Our approach thus follows a well-beaten path: Scholars first formulate a tentative hypothesis to explain a phenomenon. In formulating the hypothesis, they use the facts they know, though these may be known only from casual observation or second hand. Then they test the tentative hypothesis against observation, refining or abandoning it as the facts dictate. Coming to the 'real world' without a hypothesis yields only confusion because then a scholar has no way to choose, from among the countless facts that exist, those facts that could help to explain the phenomenon under study. A hypothesis provides a basis for focusing on what in the real world is relevant. . . . The actual process of hypothesis formulation is sometimes misunderstood because the world seems meaningful yet people seldom explicitly formulate hypotheses to explain it. The cognitive psychologists teach, however, that everyone uses heuristics to classify phenomena, although only some are aware of doing so. Scholars must be among this later group. Thomas H. Jackson & Alan Schwartz, Vacuum of Fact or Vacuous Theory: A Reply to Professor Kripke, 133 U. PENN. L. REV. 987, 991 (1985); see also Ronald H. Coase, Industrial Organization: A Proposal for Research, reprinted in THE FIRM, THE MARKET AND THE LAW 62 (1988) (arguing that theory is an essential illuminating element useful to achieve an understanding of complex phenomenon). Significantly, we do not focus our attention in this Article on the larger question of whether Chapter 11 provides an efficient means to reorganize business enterprises, or whether Chapter 11 should be amended or replaced by some other alternative procedure. See supra note 1 (surveying some of the literature examining the merits of Chapter 11). Rather, assuming without concluding that the current Chapter 11 process is efficient, our approach is intended to offer a better method of interpreting the rules of the process in a coherent way.
73. See infra notes 78-84 and accompanying text (discussing the absolute priority rule).
74. See infra notes 85-102 and accompanying text (discussing the new value doctrine).
75. See infra notes 49-76 and accompanying text.
76. See infra notes 78-102 and accompanying text.
77. See infra notes 104-67 and accompanying text.
78. See 11 U.S.C. § 1121(b) (1994 & Supp. III 1997) (providing that "[e]xcept as otherwise provided in this section, only the debtor may file a plan until after 120 days after the date of the order for relief under this chapter"). An order for relief is the order that officially commences a full-blown bankruptcy case. In a voluntary Chapter 11 case, the order for relief enters automatically upon the debtor's filing of its bankruptcy petition. See id. § 301 (1994) (providing that "[t]he commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter"); In re Butchman, 4 B.R. 379, 380 (Bankr. S.D.N.Y. 1980) (discussing section 301). In an involuntary case, the bankruptcy court enters the order for relief after either (i) the debtor concedes the validity of the involuntary petition, or (ii) the court determines that the debtor properly belongs in bankruptcy. See 11 U.S.C. § 303(h) (prescribing the procedures for the commencement of an involuntary bankruptcy proceeding); In re Busick, 831 F.2d 745, 749 (7th Cir. 1987) (stating that "[t]he relief sought by creditors under section 303 is entry of an order for relief placing the alleged debtors in involuntary bankruptcy"); In re Kidwell, 158 B.R. 203 (Bankr. E.D. Cal. 1993) (discussing procedures under section 303); In re Morris, 115 B.R. 752, 754 (Bankr. E.D.N.Y. 1990) (describing standard for entering order for relief in an involuntary proceeding); In re All Media Properties, Inc., 5 B.R. 126, 131-34 (Bankr. S.D. Tex. 1980) (describing involuntary procedures).
79. See 11 U.S.C. § 1121(d) (providing that "[o]n request of a party in interest made within the respective periods specified in subsections (b) and (c) of this section and after notice and a hearing, the court may for cause reduce or increase the 120-day period or the 180-day period referred to in this section"); United Sav. Ass'n v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood Forest Assocs., Ltd.), 808 F.2d 363, 372 (5th Cir. 1987) (discussing section 1121), aff'd, 484 U.S. 365 (1988); In re All Seasons Indus., Inc., 121 B.R. 1002, 1004 (Bankr. N.D. Ind. 1990) (discussing legislative history and procedures under the Bankruptcy Act); Eric W. Lam, Of Exclusivity and for Cause: 11 U.S.C. Section 1121(d) Re-Examined, 36 DRAKE L. REV. 533, 540-45 (1986/87) (examining the case law on the "cause" standard); see also In re Homestead Partners, Ltd., 197 B.R. 796, 716 (Bankr. N.D. Ga. 1996) (suggesting that "cause" may exist to terminate the debtor's exclusive period if the debtor proposes a plan under which the debtor's equity holders have an exclusive right to purchase the equity of the reorganized debtor); In re SM 104 Ltd., 160 B.R. 202, 227 (Bankr. S.D. Fla. 1993) (same). The 120-day period does not apply if a Chapter 11 trustee has been appointed in the case. See 11 U.S.C. § 1121(c)(1); see also infra note 112 (discussing the circumstances under which a Chapter 11 trustee may be appointed).
80. See Lam, supra note 50, at 546 (stating that " 'unusually large' reorganizing debtors typically request and receive exclusivity extensions") (quoting H.R. REP. NO. 95-595, reprinted in 1978 U.S.C.C.A.N. 5963, 6191). In response to the perceived abuse of too frequent extensions, Congress amended the bankruptcy laws to permit an immediate appeal as of right from an order increasing or reducing the exclusivity period. See 28 U.S.C. § 158(a)(2). In enacting this amendment, Congress was concerned that, even though "[e]xclusivity is intended to promote an environment in which the debtor's business may be rehabilitated and a consensual plan may be negotiated," permitting "undue extensions can result in excessively, prolonged and costly delay, to the detriment of creditors." 140 CONG. REC. H10,764 (Oct. 4, 1994) (remarks of Rep. Brooks) (citing When Firms Go Bust, THE ECONOMIST (1992)).
81. See Lam, supra note 50, at 546 (stating that " 'unusually large' reorganizing debtors typically request and receive exclusivity extensions") (quoting H.R. REP. NO. 95-595, reprinted in 1978 U.S.C.C.A.N. 5963, 6191). In response to the perceived abuse of too frequent extensions, Congress amended the bankruptcy laws to permit an immediate appeal as of right from an order increasing or reducing the exclusivity period. See 28 U.S.C. § 158(a)(2). In enacting this amendment, Congress was concerned that, even though "[e]xclusivity is intended to promote an environment in which the debtor's business may be rehabilitated and a consensual plan may be negotiated," permitting "undue extensions can result in excessively, prolonged and
82. See Lam, supra note 50, at 547-48 (observing a debtor-oriented bias in the approach that most courts take in interpreting section 1121, and noting that " 'the gap between the legal power to propose a plan and practical ability to muster even a credible threat of one is wide indeed' ") (quoting Lynn M. LoPucki, The Debtor in Full Control - Systems Failure Under Chapter 11 of the Bankruptcy Code? (Part II), 57 AM. BANKR. L.J. 247, 254 (1983)); Note, The Exclusivity Period in Section 1121: How Exclusive Is It?, 11 CARDOZO L. REV. 639, 654 (1990) (arguing that debtor abuse of section 1121 could be curtailed if bankruptcy judges would terminate exclusivity more frequently). On May 5, 1999, the U.S. House of Representatives (House) passed H.R. 833, which contains an "exclusivity wall" provision that would terminate exclusivity by a specified outside date. H.R. 833, 106th Cong., § 213 (1999). See generally Jacob M. Schlesinger, House Approves Bankruptcy Overhaul Amid Criticism Bill May Be Too Tough, WALL ST. J., May 6, 1999, at A28 (discussing passage of H.R. 833 in the House). This provision is similar to one appearing in H.R. 3150, which bill was passed by the House in 1998, but which was not ultimately enacted into law. See H.R. 3150, 105th Cong., § 209 (1998); Brunstad, Sigal & Schorling, supra note 2, at 1404 n.126 (discussing section 209 of H.R. 3150). A frequently cited justification for denying efforts to end a debtor's exclusivity is fear over the chaos that might reign if too many plan proponents emerged with too many competing reorganization ideas. This fear is probably unwarranted. See infra notes 292-305 and accompanying text (discussing the risks and benefits of competitive plans, and judicial authority to manage competing plans).
83. See Lam, supra note 50, at 547-48 (observing a debtor-oriented bias in the approach that most courts take in interpreting section 1121, and noting that " 'the gap between the legal power to propose a plan and practical ability to muster even a credible threat of one is wide indeed' ") (quoting Lynn M. LoPucki, The Debtor in Full Control - Systems Failure Under Chapter 11 of the Bankruptcy Code? (Part II), 57 AM. BANKR. L.J. 247, 254 (1983)); Note, The Exclusivity Period in Section 1121: How Exclusive Is It?, 11 CARDOZO L. REV. 639, 654 (1990) (arguing that debtor abuse of section 1121 could be curtailed if bankruptcy judges would terminate exclusivity more frequently). On May 5, 1999, the U.S. House of Representatives (House) passed H.R. 833, which contains an "exclusivity wall" provision that would terminate exclusivity by a specified outside date. H.R. 833, 106th Cong., § 213 (1999). See generally Jacob M. Schlesinger, House Approves Bankruptcy Overhaul Amid Criticism Bill May Be Too Tough, WALL ST. J., May 6, 1999, at A28 (discussing passage of H.R. 833 in the House). This provision is similar to one appearing in H.R. 3150, which bill was passed by the House in 1998, but which was not ultimately enacted into law. See H.R. 3150, 105th Cong., § 209 (1998); Brunstad, Sigal & Schorling, supra note 2, at 1404 n.126 (discussing section 209 of H.R. 3150). A frequently cited justification for denying efforts to end a debtor's exclusivity is fear over the chaos that might reign if too many plan proponents emerged with too many competing reorganization ideas. This fear is probably unwarranted. See infra notes 292-305 and accompanying text (discussing the risks and benefits of competitive plans, and judicial authority to manage competing plans).
84. See Lam, supra note 50, at 547-48 (observing a debtor-oriented bias in the approach that most courts take in interpreting section 1121, and noting that " 'the gap between the legal power to propose a plan and practical ability to muster even a credible threat of one is wide indeed' ") (quoting Lynn M. LoPucki, The Debtor in Full Control - Systems Failure Under Chapter 11 of the Bankruptcy Code? (Part II), 57 AM. BANKR. L.J. 247, 254 (1983)); Note, The Exclusivity Period in Section 1121: How Exclusive Is It?, 11 CARDOZO L. REV. 639, 654 (1990) (arguing that debtor abuse of section 1121 could be curtailed if bankruptcy judges would terminate exclusivity more frequently). On May 5, 1999, the U.S. House of Representatives (House) passed H.R. 833, which contains an "exclusivity wall" provision that would terminate exclusivity by a specified outside date. H.R. 833, 106th Cong., § 213 (1999). See generally Jacob M. Schlesinger, House Approves Bankruptcy Overhaul Amid Criticism Bill May Be Too Tough, WALL ST. J., May 6, 1999, at A28 (discussing passage of H.R. 833 in the House). This provision is similar to one appearing in H.R. 3150, which bill was passed by the House in 1998, but which was not ultimately enacted into law. See H.R. 3150, 105th Cong., § 209 (1998); Brunstad, Sigal & Schorling, supra note 2, at 1404 n.126 (discussing section 209 of H.R. 3150). A frequently cited justification for denying efforts to end a debtor's exclusivity is fear over the chaos that might reign if too many plan proponents emerged with too many competing reorganization ideas. This fear is probably unwarranted. See infra notes 292-305 and accompanying text (discussing the risks and benefits of competitive plans, and judicial authority to manage competing plans).
85. See Karen Gross & Patricia Redmond, In Defense of Debtor Exclusivity: Assessing Four of the 1994 Amendments to the Bankruptcy Code, 69 AM. BANKR. L.J. 287, 291 (1995) (arguing that "exclusivity is perceived to encourage rehabilitation by empowering the debtor to control its own destiny, an observation confirmed by practitioners. In a sense, the exclusive right to file a plan can be seen as the debtor's chip in the reorganization game."). See also Note, Exclusivity, supra note 52, at 652 (arguing in favor of debtor exclusivity with certain limitations, noting the potential for abuse, and observing that " '[t]he ideal chapter 11 case envisioned by the drafters of the Bankruptcy Code was an expeditious proceeding in which relatively evenly-matched parties, the debtor and its creditors, strove to reorganize an ailing business in a manner that would fairly recognize the competing interests of all' ") (quoting Curtin, Gross & Togut, Debtors-Out-of-Control: A Look at Chapter 11's Check and Balance System, 1988 ANN. SURV. BANKR. L. 87, 87 (1988)).
86. See Karen Gross & Patricia Redmond, In Defense of Debtor Exclusivity: Assessing Four of the 1994 Amendments to the Bankruptcy Code, 69 AM. BANKR. L.J. 287, 291 (1995) (arguing that "exclusivity is perceived to encourage rehabilitation by empowering the debtor to control its own destiny, an observation confirmed by practitioners. In a sense, the exclusive right to file a plan can be seen as the debtor's chip in the reorganization game."). See also Note, Exclusivity, supra note 52, at 652 (arguing in favor of debtor exclusivity with certain limitations, noting the potential for abuse, and observing that " '[t]he ideal chapter 11 case envisioned by the drafters of the Bankruptcy Code was an expeditious proceeding in which relatively evenly- matched parties, the debtor and its creditors, strove to reorganize an ailing business in a manner that would fairly recognize the competing interests of all' ") (quoting Curtin, Gross & Togut, Debtors-Out-of-Control: A Look at Chapter 11's Check and Balance System, 1988 ANN. SURV. BANKR. L. 87, 87 (1988)).
87. In granting debtors an exclusive opportunity to fashion a plan, Congress apparently recognized that, without the chance to control the terms of the debtor's reorganization, old equity holders would tend to keep the debtor out of bankruptcy proceedings until it was too late to save the debtor's business. See Lam, supra note 50, at 538 (stating that section 1121 " 'recognizes the need for the debtor to remain in control to some degree, or else debtors will avoid the reorganization provisions of the bill until it would be too late for them to be an effective remedy.' ") (quoting H.R. REP. NO. 95-595, at 231-32, reprinted in 1978 U.S.C.C.A.N. 5963, 6190-91). At the same time, Congress also recognized the opportunity for abuse, concluding in the legislative history that "[a]n extension [of the exclusivity period] should not be employed as a tactical device to put pressure on parties in interest to yield to a plan they consider unsatisfactory." S. REP. NO. 95-989, at 118 (1978); see also United Sav. Ass'n v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood Forest Assocs., Ltd.), 808 F.2d 363, 372 (5th Cir. 1987) (analyzing the "limited exclusivity period" of section 1121, contrasting it to prior law, and stating that "[s]ection 1121 was designed, and should be faithfully interpreted, to limit the delay that makes creditors the hostages of Chapter 11 debtors"), aff'd, 484 U.S. 365 (1988).
88. See LaSalle, 119 S. Ct. 1411, 1417 (1999) (observing that "[t]he reason for [the absolute priority rule is] the danger inherent in any reorganization plan proposed by a debtor . . . that the plan will simply turn out to be too good a deal for the debtor's owners."); Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1072 (2d Cir. 1983) (Winter, J., dissenting) (arguing that the challenge by the equity security holders' committee to the sale in bankruptcy of a particular asset was simply a delaying tactic designed to extract value from creditors); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775, 780 (1988) (arguing that the entitlements of creditors are undermined when equity holders delay the proceedings to force creditors to agree to deviations from absolute priority); Lynn M. LoPucki & William C. Whitford, Preemptive Cram Down, 65 AM. BANKR. L.J. 625, 627, 636 (1991) (observing the "obstructionist potential" of the equity interest holders of insolvent firms, and proposing a procedure that could be used to extinguish their interests early on in the case); see also infra notes 203 & 205 (discussing the effects of delay on creditors); cf. Merton H. Miller, The Wealth Transfers of Bankruptcy: Some Illustrative Examples, 41 LAW & CONTEMP. PROBS. 39, 40-41 (1977) (stating that "[c]ourt protection that permits stockholders to work their way out of difficulties and repay their obligations in full . . . gives the stockholders a valuable call option at the expense of creditors, who in effect are compelled to put up the [funds] on terms they would otherwise never accept").
89. See LaSalle, 119 S. Ct. 1411, 1417 (1999) (observing that "[t]he reason for [the absolute priority rule is] the danger inherent in any reorganization plan proposed by a debtor . . . that the plan will simply turn out to be too good a deal for the debtor's owners."); Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1072 (2d Cir. 1983) (Winter, J., dissenting) (arguing that the challenge by the equity security holders' committee to the sale in bankruptcy of a particular asset was simply a delaying tactic designed to extract value from creditors); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775, 780 (1988) (arguing that the entitlements of creditors are undermined when equity holders delay the proceedings to force creditors to agree to deviations from absolute priority); Lynn M. LoPucki & William C. Whitford, Preemptive Cram Down, 65 AM. BANKR. L.J. 625, 627, 636 (1991) (observing the "obstructionist potential" of the equity interest holders of insolvent firms, and proposing a procedure that could be used to extinguish their interests early on in the case); see also infra notes 203 & 205 (discussing the effects of delay on creditors); cf. Merton H. Miller, The Wealth Transfers of Bankruptcy: Some Illustrative Examples, 41 LAW & CONTEMP. PROBS. 39, 40-41 (1977) (stating that "[c]ourt protection that permits stockholders to work their way out of difficulties and repay their obligations in full . . . gives the stockholders a valuable call option at the expense of creditors, who in effect are compelled to put up the [funds] on terms they would otherwise never accept").
90. See LaSalle, 119 S. Ct. 1411, 1417 (1999) (observing that "[t]he reason for [the absolute priority rule is] the danger inherent in any reorganization plan proposed by a debtor . . . that the plan will simply turn out to be too good a deal for the debtor's owners."); Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1072 (2d Cir. 1983) (Winter, J., dissenting) (arguing that the challenge by the equity security holders' committee to the sale in bankruptcy of a particular asset was simply a delaying tactic designed to extract value from creditors); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775, 780 (1988) (arguing that the entitlements of creditors are undermined when equity holders delay the proceedings to force creditors to agree to deviations from absolute priority); Lynn M. LoPucki & William C. Whitford, Preemptive Cram Down, 65 AM. BANKR. L.J. 625, 627, 636 (1991) (observing the "obstructionist potential" of the equity interest holders of insolvent firms, and proposing a procedure that could be used to extinguish their interests early on in the case); see also infra notes 203 & 205 (discussing the effects of delay on creditors); cf. Merton H. Miller, The Wealth Transfers of Bankruptcy: Some Illustrative Examples, 41 LAW & CONTEMP. PROBS. 39, 40-41 (1977) (stating that "[c]ourt protection that permits stockholders to work their way out of difficulties and repay their obligations in full . . . gives the stockholders a valuable call option at the expense of creditors, who in effect are compelled to put up the [funds] on terms they would otherwise never accept").
91. See infra notes 59, 64-68, 72-76 and accompanying text. These rules track one of the main goals of Chapter 11 generally: to maximize the value of the debtor's bankruptcy estate in order to increase the creditors' return. See supra note 26 and accompanying text (discussing the larger aims of the Chapter 11 process).
92. See infra note 75 (discussing the purpose of the absolute priority rule to prevent equity holders from recovering more then they are entitled to receive); see also Boston Post Road Ltd. Partnership v. Federal Deposit Ins. Corp. (In re Boston Post Road Ltd. Partnership), 21 F.3d 477, 483 (2d Cir. 1994) (rejecting the practice of "gerrymandering"); Windsor on the River Assocs., Ltd. v. Balcor Real Estate Finance, Inc. (In re Windsor on the River Assocs., Ltd.), 7 F.3d 127, 132 (8th Cir. 1993) (rejecting the practice of "artificial impairment"); Lumber Exch. Bldg. Ltd. Partnership v. Mutual Life Ins. Co. of New York (In re Lumber Exch. Bldg. Ltd. Partnership), 968 F.2d 647, 650 (8th Cir. 1992) (rejecting as artificial impairment " 'a thinly veiled attempt to manipulate the vote to assure acceptance of the plan by an impaired class and meet the requirements of 11 U.S.C. § 1129(a)(10)' ") (citation omitted); Phoenix Mut. Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 948 F.2d 134, 139 (5th Cir. 1991) (stating that "thou shall not classify similar claims differently in order to gerrymander an affirmative vote on a reorganization plan"), modified, 995 F.2d 1274 (5th Cir. 1991); Linda J. Rusch, Gerrymandering the Classification Issue in Chapter 11 Reorganizations, 63 U. COLO. L. REV. 163 (1992) (discussing the problems of "gerrymandering" and "artificial impairment").
93. A Chapter 11 plan cannot become effective until it is approved, or "confirmed," by the bankruptcy court. See 11 U.S.C. § 1129 (1994 & Supp. III 1997) (prescribing the standards for confirmation of a Chapter 11 plan); id. § 1141 (prescribing the effect of confirmation).
94. See id. § 1129(a)(1) (providing that "[t]he court shall confirm a plan only if . . . [t]he plan complies with applicable provisions of this title."); Resorts Int'l, Inc. v. Lowenschuss, 67 F.3d 1394, 1401 (9th Cir. 1995) (stating that "[t]he bankruptcy court lacks the power to confirm plans of reorganization which do not comply with applicable provisions of the Bankruptcy Code").
95. See 11 U.S.C. § 1123(a)(1) (providing in pertinent part that "[n]otwithstanding any otherwise applicable nonbankruptcy law, a plan shall . . . designate, subject to section 1122 of this title, classes of claims . . . and classes of interests"). A "claim" is defined as a right to payment. Id. § 101(5). The term "interest" refers to an equity interest in the debtor. See id. § 501(a) (providing that "[a] creditor or indenture trustee may file a proof of claim. An equity security holder may file a proof of interest."). In general, a plan proponent's ability to classify claims also presents opportunities for artful manipulation. See supra note 57 (citing cases discussing the problem of "gerrymandering"); infra note 119 (discussing the classification of claims).
96. See 11 U.S.C. § 1123(a)(2) (providing that "a plan shall . . . specify any class of claims or interests that is not impaired under the plan."); In re Eagle-Pitcher Indus., Inc., 203 B.R. 256, 271 (S.D. Ohio 1996) (reciting the rule that "a plan must specify any class of claims or interests that is not impaired").
97. See 11 U.S.C. § 1124. Section 1124 provides that a class of claims or interests is impaired under a plan unless, with respect to each claim or interest of such class, the plan . . . (1) leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest; or (2) notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default . . . (A) cures any such default . . . ; (B) reinstates the maturity of such claim or interest as such maturity existed before such default; (C) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder; and (D) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest. See also LaSalle, 119 S. Ct. 1411, 1416 n.14 (1999) (stating that "[c]laims are unimpaired if they retain all of their prepetition legal, equitable, and contractual rights against the debtor"); Windsor on the River Assocs., Ltd. v. Balcor Real Estate Finance, Inc. (In re Windsor on the River Assocs., Ltd.), 7 F.3d 127, 130 (8th Cir. 1993) (stating that "any alteration of a creditor's rights, no matter how minor, constitutes 'impairment' "); In re L & J Anaheim Assocs., 995 F.2d 940, 943 (9th Cir. 1993) (discussing the concept of impairment); Di Pierro v. Taddeo (In re Taddeo), 685 F.2d 24, 28-29 (2d Cir. 1982) (observing that "§ 1124(1) declares that any change in legal, equitable or contractual rights creates impairment").
98. See 11 U.S.C. § 1126(a) (providing that "[t]he holder of a claim or interest allowed under section 502 of this title may accept or reject a plan"); Taddeo, 685 F.2d at 28 (observing that "[t]hose parties with 'impaired' claims or interests can vote").
99. See 11 U.S.C. § 1126(f) (providing that "[n] otwithstanding any other provision of this section, a class that is not impaired under a plan, and each holder of a claim or interest of such class, are conclusively presumed to have accepted the plan, and solicitation of acceptances with respect to such class from the holders of claims or interests of such class is not required"); Barakat v. Life Ins. Co. of Virginia (In re Barakat), 99 F.3d 1520, 1527 (9th Cir. 1996) (stating the rule that "[a] class that is not impaired is 'conclusively presumed to have accepted the plan' "). Conversely, the holders of claims or interests that are to receive nothing under the plan are deemed conclusively to have rejected it. See 11 U.S.C. § 1126(g) (providing that "[n]otwithstanding any other provision of this section, a class is deemed not to have accepted a plan if such plan provides that the claims or interests of such class do not entitle the holders of such claims or interests to receive or retain any property under the plan on account of such claims or interests"); In re Waterways Barge Partnership, 104 B.R. 776, 783 (Bankr. N.D. Miss. 1989) (stating that a class that is to receive nothing under the plan "is conclusively deemed not to have accepted the plan, and the class is to be treated as a dissenting class for purposes of confirmation").
100. See 11 U.S.C. § 1126(c) (providing in pertinent part that "[a] class of claims has accepted a plan if such plan has been accepted by creditors . . . . that hold at least two-thirds in amount and more than one-half in number of allowed claims of such class held by creditors . . . that have accepted or rejected such plan"); In re MCorp Financial, Inc., 137 B.R. 219, 233 (Bankr. S.D. Tex. 1992) (restating the rule that "[a]cceptance by a class is acceptance by the holders of 2/3rds in dollar amount and a majority in number of claims of that class"). A similar rule governs the acceptance or rejection of a plan by a class of interests. See 11 U.S.C. § 1126(d) (providing in pertinent part that "[a] class of interests has accepted a plan if such plan has been accepted by holders of such interests . . . that hold at least two-third in amount of the allowed interests of such class held by holders of such interests . . . that have accepted or rejected such plan"); In re MAP 1978 Drilling Partnership, 95 B.R. 432, 434-35 (Bankr. N.D. Tex. 1989) (discussing voting under section 1126(d)).
101. See 11 U.S.C. § 1129(a)(8) (providing that a plan may be confirmed if, "[w]ith respect to each class of claims or interests . . . (A) such class has accepted the plan; or . . . (B) such class is not impaired under the plan"); LaSalle, 119 S. Ct. 1411, 1415-16 (1999) (discussing section 1128(a)(8)); see also supra note 62 (discussing the concept of impairment).
102. See LaSalle, 119 S. Ct. at 1424 n.28 (making this point); Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 207 (1988) (stating that "[t]he Court of Appeals may well have believed that petitioners or other unsecured creditors would be better off if respondents' reorganization plan was confirmed. But that determination is for creditors to make . . . and courts applying the Code must effectuate their decision."); Travelers Ins. Co. v. Bryson Properties, XVIII (In re Bryson Properties, XVIII), 961 F.2d 496, 504 (4th Cir. 1992) (same); Kham & Nate's Shoes v. First Bank, 908 F.2d 1351, 1360 (7th Cir. 1990) (arguing that "[w]hen there is value to be gained by allowing a lower class to kick in new value and keep its interest, the creditors should be willing to go along."); Brunstad, Sigal & Schorling, supra note 2, at 1405-06 n.136 (quoted in LaSalle, 119 S. Ct. at 1424 n.28); see also supra note 15 and accompanying text (discussing this point).
103. See supra notes 65-68 and accompanying text (discussing the voting scheme in Chapter 11).
104. See 11 U.S.C. § 1129(b); LaSalle, 119 S. Ct. at 1415-16 (explaining the cram down rule); Kenneth N. Klee, All You Ever Wanted to Know About Cram Down under the New Bankruptcy Code, 53 AM. BANKR. L.J. 133 (1979) (same).
105. 298 U.S. 513 (1936).
106. Id. at 541 (Cardozo, J., dissenting); see also Mason v. Paradise Irrigation Dist., 326 U.S. 536, 544-45 (1946) (noting that the purpose of the municipal reorganization statute permitting majority rule was to bind recalcitrant minority creditors to the reorganization plan in order to avoid "making it worthwhile for them to lie back until they got their price").
107. 11 U.S.C. § 1129(b)(1). More specifically, section 1129(b)(1) provides in pertinent part that "if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan." Id.; see Arnold & Baker Farms v. United States, 85 F.3d 1415, 1420 (9th Cir. 1996) (discussing the fair and equitable standard); In re May, 174 B.R. 832, 835-36 (Bankr. S.D. Ga. 1994) (same); In re Graphic Communications, Inc., 200 B.R. 143, 148 (Bankr. E.D. Mich. 1996) (discussing the unfair discrimination standard); In re Eitemiller, 149 B.R. 626, 628 (Bankr. D. Idaho 1993) (same). Although the Code prohibits "unfair discrimination" against a class that has voted to reject the plan, the Code does not define the phrase "unfair discrimination," and the standard remains notoriously unclear. See Aetna Realty Investors, Inc. v. Monarch Beach Venture, Ltd. (In re Monarch Beach Venture, Ltd.), 166 B.R. 428, 437 (C.D. Cal. 1993) (stating that "the bankruptcy court must evaluate the [discrimination], and make findings and conclusions whether and in what manner there is a reasonable basis for any discrimination, and the importance to the plan of such discrimination."). Compare In re Aztec Co., 107 B.R. 585, 590 (Bankr. M.D. Tenn. 1989) (formulating a four-part test requiring consideration of "(1) whether the discrimination is supported by a reasonable basis; (2) whether the debtor can confirm and consummate a plan without the discrimination; (3) whether the discrimination is proposed in good faith; and (4) the treatment of the classes discriminated against."), with In re Furlow, 70 B.R. 973, 977-78 (Bankr. E.D. Pa. 1987) (criticizing the four-part test and formulating a different test based on whether "the debtor is able to prove a reasonable basis for the degree of discrimination contemplated by the Plan"). See generally Mason v. Paradise Irrigation Dist., 326 U.S. 536, 542-43 (1946) (discussing the concept of unfair discrimination under the former Bankruptcy Act).
108. As one commentator wrote over three centuries ago: Equity is A Roguish thing, for Law [we] have [to] measure[,] know what to trust to[ ]. Equity is according to [the] conscience of him [who] is Chancellor, and as [that] is larger or narrower, so[ ] is equity[.] Tis all one as if they should make [the] Standard for [the] measure [what] we[ ] call A foot, to be [the] Chancellor's foot; what an uncertain measure would this be; One Chancellor ha's a long foot[,] another A short foot [, and] a third an indifferent foot; tis [the] same thing in [the] Chancellor's Conscience. JOHN SELDEN, "Equity," TABLE-TALK (1689), reprinted in TABLE TALK OF JOHN SELDEN 43 (Frederick Pollock ed., 1927).
109. As one commentator wrote over three centuries ago: Equity is A Roguish thing, for Law [we] have [to] measure[,] know what to trust to[ ]. Equity is according to [the] conscience of him [who] is Chancellor, and as [that] is larger or narrower, so[ ] is equity[.] Tis all one as if they should make [the] Standard for [the] measure [what] we[ ] call A foot, to be [the] Chancellor's foot; what an uncertain measure would this be; One Chancellor ha's a long foot[,] another A short foot [, and] a third an indifferent foot; tis [the] same thing in [the] Chancellor's Conscience. JOHN SELDEN, "Equity," TABLE-TALK (1689), reprinted in TABLE TALK OF JOHN SELDEN 43 (Frederick Pollock ed., 1927).
110. 11 U.S.C. § 1129(b)(2)(B)(ii). Although the term "property" is not defined in the text of the Code itself, the legislative history "suggests that Congress' meaning was quite broad." Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 208 (1988) (adding that " '[p]roperty' includes both tangible and intangible property.") (quoting H. REP. NO. 95-585, 413 (1977)). Excluding section 1129(b)(2)(C) dealing with interests, section 1129(b)(2) provides as follows: (2) For purposes of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements: (A) With respect to a class of secured claims, the plan provides -(i) (I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claims; and (II) that each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder's interest in the estate's interest in such property; (ii) for the sale, subject to section 363(k) of this title, of any property that is subject to the liens securing such claims, free and clear of such liens, with such liens to attach to the proceeds of such sale, and the treatment of such liens on proceeds under clause (i) or (iii) of this subparagraph; or (iii) for the realization by such holders of the indubitable equivalent of such claims. (B) With respect to a class of unsecured claims -(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property. 11 U.S.C. § 1129(b); see supra note 72 (citing cases discussing the fair and equitable standard of section 1129(b)); Aetna Realty Investors, Inc. v. Monarch Beach Venture, Ltd. (In re Monarch Beach Venture, Ltd.), 166 B.R. 428, 433-34 (C.D. Cal. 1993) (discussing the requirements of section 1129(b)(2)(A) applicable to secured claims).
111. See Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445, 455 (1926) (stating that "to the extent of their debts creditors are entitled to priority over stockholders against all the property of an insolvent corporation"); Louisville Trust Co. v. Louisville, New Albany & Chicago Ry. Co., 174 U.S. 674, 683-84 (1899) (reciting "the familiar rule that the stockholder's interest in the property is subordinate to the rights of creditors; first of secured and then of unsecured creditors" and concluding that "any arrangement of the parties by which the subordinate rights and interests of the stockholders are attempted to be secured at the expense of the prior rights of either class of creditors comes within judicial denunciation"); see also Consolidated Rock Prods. Co. v. Du Bois, 312 U.S. 510, 529 (1941) (quoting Kansas City Terminal Ry. Co., 271 U.S. at 454); Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 115-16 (1939) (quoting Louisville Trust Co., 174 U.S. at 684).
112. There are several other criteria enumerated in the statute. See supra note 74 (reciting the text of section 1129(b)(2)). In addition, the statutory list was not intended to be exhaustive, and courts have inferred additional requirements as well. See Federal Sav. & Loan Ins. Corp. v. D & F Constr., Inc. (In re D & F Constr., Inc.), 865 F.2d 673, 675 (5th Cir. 1989) (stating that "[s]ection 1129(b)(2) sets minimal standards plans must meet. However, it is not to be interpreted as requiring that every plan not prohibited be approved."); In re Rivers End Apartments, Ltd., 167 B.R. 470, 486 (Bankr. S.D. Ohio 1994) (listing explicit and implicit requirements of the fair and equitable standard); see also infra notes 214, 319-21 and accompanying text (discussing some of the implied requirements of the fair and equitable standard).
113. Phoenix Mutual Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 948 F.2d 134, 1282 (5th Cir. 1991) (paraphrasing Gertrude Stein), modified, 995 F.2d 1274 (5th Cir.), cert. denied, 506 U.S. 821 (1992).
114. See supra note 74 (quoting section 1129(b)(2)).
115. See Bankruptcy Act of 1898, 11 U.S.C. § 621(2), 52 Stat. 883, 897 (1938) (repealed 1979); see also infra note 164 (discussing Chapter X).
116. Bankruptcy Act of 1898, 11 U.S.C. § 205, 48 Stat. 911, 919 (1934) (repealed 1938). Section 77B(f) provided in relevant part that "the judge shall confirm the plan if satisfied that . . . it is fair and equitable and does not discriminate unfairly in favor of any class of creditors or stockholders . . . ." Id. 81. 228 U.S. 482 (1913). Boyd involved the bankruptcy of a railroad. Explaining the absolute priority rule, the Court stated as follows: "If the value of the road justified the issuance of stock in exchange for old shares, the creditors were entitled to the benefit of that value, whether it was present or prospective, for dividends or only for purposes of control. In either event it was a right of property out of which the creditors were entitled to be paid before stockholders could retain it for any purpose whatever." Id. at 508.
117. See id. Commonly, equity holders, or their manager-representatives, would agree to sell the debtor's assets to a new entity, either subject to the debt of the senior creditors, or for a purchase price paid through the extinguishment of existing debt, but without compensation to the holders of junior debt (such as public bondholders). In addition, the debtor's equity holders would often obtain some or all of the equity in the new enterprise in exchange for their complicity in the scheme. See Baird & Jackson, supra note 2, at 739-40 (describing this procedure). For a discussion of equity receiverships, see DOUGLAS G. BAIRD, THE ELEMENTS OF BANKRUPTCY 64-72 (rev. ed. 1993); see also Railroad Co. v. Howard, 74 U.S. (7 Wall) 392, 409-10 (1868) (holding that, notwithstanding an agreement reached between certain creditors and shareholders to distribute property to the shareholders in spite of the fact that other creditors had not been paid, the creditors should receive payment from the proceeds of the sale of the debtor's property ahead of shareholders).
118. See supra note 75 (citing cases).
119. See Brunstad, Sigal & Schorling, supra note 2, at 1407 (discussing this point); Baird & Jackson, supra note 2, at 740 (discussing the hierarchical payment expectations of the parties who commit capital to a firm). As explained by Judge Learned Hand: Both the shareholders and the creditors in any enterprise assume some risk of its failure, but their risks are different. The shareholders stand to lose first, but in return they have all the winnings above the creditors' interest, if the venture is successful; on the other hand the creditors have only their interest, but they come first in distribution of the assets. . . . . [E]very creditor rightly assumes that his risk is measured by the collective claims of other creditors, and by creditors he understands those alone, who like him, have only a stipulated share in the profits [calculated on the basis of their claims]. To compel him to divide the assets in insolvency with those who at their option have all along had the power to take all the earnings, is to add to the risk which he accepted. Flynn v. Loewer Realty Co (In re Loewer's Gambrinus Brewery Co.), 167 F.2d 318, 320 (2d Cir. 1948) (Hand, J., concurring). Any dilution of a creditor's recovery occasioned by the more favorable treatment of other claims of similar rank obviously increases the risk of the disfavored creditor, which may be contrary to his or her expectation. See In re Iowa R.R. Co. v. Union Pacific R.R. Co., 840 F.2d 535, 536 (7th Cir. 1988) (observing that creditors of the same rank all have an equivalent expectation of repayment on account of their valid claims); cf. In re Koelbl, 751 F.2d 137, 140 (2d Cir. 1984) (stating that "the 'fair and equitable' requirement [of section 1129(b)(2) of the Code, which includes the absolute priority rule] does not look toward protection of debtor interests, but rather toward protection of dissenting creditor interests, absent the value of the ongoing business being large enough to support protection of the debtors"); Scolnick v. Connecticut Tel. & Elec. Corp., 265 F.2d 133, 135 (2d Cir. 1959) (stating that "since there was not near enough money . . . to pay the general creditors in full, the [subordinated] debenture holders had no standing - they were in no way adversely affected by this plan."); Union Trust Co. v. Wagner (In re Central Funding Corp.), 75 F.2d 256, 259 (2d Cir. 1935) (stating that "[i]n common parlance that term [reorganization] is not limited to cases where the rights of all persons interested in a corporation, whether lienors, general creditors, or stockholders, are made to survive under some new corporate arrangement. Not infrequently the rights of some of these classes have become so worthless that they deserve and receive no recognition in the reorganization.").
120. See supra note 4; infra note 87 (citing cases making this point).
121. There are numerous reasons why old equity holders may wish to provide new capital to a reorganized debtor. Among other reasons, individual equity holders may hold intangible firm-specific investments in the enterprise, as in the case of an individual equity holder who is also one of the debtor's managers and who has particular expertise in the debtor's business affairs or operations. To the extent that the debtor presents a viable candidate for reorganization, this individual may well wish to participate in the ownership structure of the reorganized debtor in order to preserve his or her intangible investment, which might otherwise be lost. See Baird & Jackson, supra note 2, at 742-43 (discussing this situation). In general, creditors may wish to accommodate this desire as an inducement for the individual's continued association with the debtor. In addition, old equity holders may have passive reasons for wishing to continue to participate in the reorganized debtor's ownership structure, as in the case of the partners in LaSalle who faced significant tax liabilities if they did not continue to participate. See infra note 128 and accompanying text (discussing this point).
122. See Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 117 (1939) (observing that the Court had previously "recognized the necessity at times of permitting the inclusion of stockholders on payment of contributions, even though the debtor company was insolvent"); Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445, 455 (1926) (observing that "[g]enerally, additional funds will be essential to the success of the undertaking, and it may be impossible to obtain them unless stockholders are permitted to contribute and retain an interest sufficiently valuable to move them"); Mason v. Paradise Irrigation Dist., 326 U.S. 536, 541-42 (1946) (stating that "[i]t has long been recognized in reorganization law that those who put new money into the distressed enterprise may be given a participation in the reorganization plan reasonably equivalent to their contribution. . . . That rule is based on practical necessities. Without the inducement new money could not be obtained.").
123. See supra note 55.
124. 308 U.S. 106 (1939).
125. Id. at 122.
126. 317 U.S. 78 (1942).
127. Id. at 85 (quoting Los Angeles Lumber Prods., 308 U.S. at 121).
128. In order to be "new," the contribution must constitute an infusion of value that does not constitute preexisting property of the estate. See Berkeley Fed. Bank & Trust v. Sea Garden Motel & Apartments (In re Sea Garden Motel & Apartments), 195 B.R. 294, 301 (D.N.J. 1996) (discussing the "new" contribution requirement); In re Tucson Self-Storage, 166 B.R. 892, 899 (BAP 9th Cir. 1994) (same); In re Cipparone, 175 B.R. 643, 645 (Bankr. E.D. Mich. 1994) (same); In re S.A.B.T.C. Townhouse Ass'n, Inc., 152 B.R. 1005, 1010 (Bankr. M.D. Fla. 1993) (same); see also infra notes 252-55 and accompanying text (discussing this element of the new value doctrine).
129. Many courts have held that a contribution is not "substantial" if it is unreasonably small in comparison to the debtor's outstanding unsecured claims. See In re Woodbrook Assocs., 19 F.3d 312, 320 (7th Cir. 1994) (discussing the "substantial" requirement); In re Snyder, 967 F.2d 1126, 1131 (7th Cir. 1992) (same). The test is thought to provide a rough means to weigh the relative benefits of the contribution to creditors and equity holders, and to screen out de minimis contributions. See id. (contribution must not be merely a token); Sea Garden Motel & Apartments, 195 B.R. at 301 (stating that the requirement provides a means to weigh relative benefits); see also infra notes 256-68 and accompanying text (discussing the "substantiality" requirement); cf. Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 317 U.S. 78, 85 (1942) (pointing out that, in view of the amount of the claims at issue, a $50,000 cash payment offered to liquidate the claims of creditors was inadequate to sustain the debtor's attempt to reorganize, would not satisfy the new value doctrine, and would merely constitute "a nuisance value wholly unjustified by the reorganization standards which are incorporated into Ch. X").
130. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 204-05 (1988) (holding that, in order to constitute money or money's worth, the contribution must be tangible and may not be merely a promise of future services); see also infra notes 269-79 and accompanying text (discussing the "money or money's worth" requirement).
131. In order to be "necessary," the contribution must not constitute a payment that is merely a pretext to achieve confirmation of a new value plan. See In re Wynnefield Manor Assocs., L.P., 163 B.R. 53, 58-59 (Bankr. E.D. Pa. 1994) (discussing the "necessity" requirement); In re Batten, 141 B.R. 899, 908 (Bankr. W.D. La. 1992) (same); In re Tallahassee Assocs., 132 B.R. 712, 719 (Bankr. W.D. Pa. 1991) (same); see also Los Angeles Lumber, 308 U.S. at 121 n.15 (stating that the Court had previously "stress[ed] the necessity, at times, of seeking new money 'essential to the success of the undertaking' from old stockholders," and, further, that "[t]his new money was commonly necessary in equity reorganizations not only to provide new working capital but also to pay dissenting creditors") (quoting Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445, 455 (1926)); infra notes 280-305 and accompanying text (discussing the "necessity" requirement).
132. See Consolidated Rock Prods. Co. v. Du Bois, 312 U.S. 510, 526-27 (1941) (stating that the method to be used to determine reasonable equivalence depends on the particular circumstances of the case); Teamsters Nat'l Freight Indus. Negotiating Comm. v. U.S. Truck Co. (In re U.S. Truck Co.), 800 F.2d 581, 588 (6th Cir. 1986) (applying the standard); In re Potter Material Serv., Inc., 781 F.2d 99, 103-04 (7th Cir. 1986) (same); see also infra notes 306-13 and accompanying text (discussing the "reasonably equivalent" requirement).
133. See In re Potter Material Serv., Inc., 781 F.2d 99 (7th Cir. 1986); In re U.S. Truck Co., 47 B.R. 932 (E.D. Mich. 1985), aff'd, 800 F.2d 581 (6th Cir. 1986); In re Marston Enterprises, 13 B.R. 514, 517-18 (Bankr. E.D.N.Y 1981).
134. 485 U.S. 197 (1988).
135. See id. at 203 n.3.
136. See id. Many lower courts have followed the Supreme Court's lead in this regard, assuming without deciding that the doctrine remains viable, but concluding that the particular plan under review did not satisfy the doctrine's requirements. See Coltex Loop Central Three Partners, L.P. v. BT/SAP Pool C Assocs. (In re Coltex Loop Central Three Partners, L.P.), 138 F.3d 39, 42-44 (2d Cir. 1998); supra note 11 (citing additional cases).
137. Already, some have downplayed the LaSalle decision as nothing more than a refinement of the new value doctrine. See Thomas J. Salerno et al., Urgent Message to the Supreme Court: 'Just Do It', 34 BANKR. CT. DEC., May 25, 1999, at A1, A12 (criticizing the LaSalle decision as having resolved "very little").
138. See In re Johns-Manville Corp., case nos. 82-B-11656 through 82-B-11676 (Bankr. S.D.N.Y.); In re Ionosphere Clubs, Inc., case nos. 89-B-10448, 89-B-10449 (Bankr. S.D.N.Y.) (involving the bankruptcy proceedings of Eastern Air Lines); In re Continental Airlines, Inc., case nos. 90-932 through 90-980 (Bankr. D. Del.); In re Chateaugay Corp., case nos. 86-B-11270 through 86-B-11334 (Bankr. S.D.N.Y.) (involving the bankruptcy proceedings of LTV Steel Co., Inc.); In re RH Macy & Co., case no. 92-B-40477 (Bankr. S.D.N.Y.); In re Pan Am Corp., case nos. 91-B-10080 through 91-B-10087 (Bankr. S.D.N.Y.); In re Marvel Entertainment Group, Inc., case no. 97-638-RRM (D. Del.).
139. See LaSalle, 119 S. Ct. 1411, 1414 (1999).
140. See id.
141. See id. at 1415; see also 11 U.S.C. § 506(a) (1994) (providing for the valuation of secured claims); Associates Commercial Corp. v. Rash, 117 S. Ct. 1879, 1884-87 (1997) (discussing the operation of section 506(a) and the proper procedure for the valuation of collateral in bankruptcy if the debtor proposes to retain the collateral); FED. R. BANKR. P. 3012 (supplying procedural rule for valuation proceedings).
142. See In re 203 North LaSalle St. Ltd. Partnership, 190 B.R. 567, 573 (Bankr. N.D. Ill. 1995).
143. See id.
144. See id.
145. See id.
146. See id.; see also 11 U.S.C. § 362(a) (1994 & Supp. III 1997) (providing for a stay of most debt collection activities against the debtor or the debtor's property upon the commencement of a bankruptcy case); Pintler Corp. v. Fidelity & Cas. Co. (In re Pintler Corp.), 124 F.3d 1310, 1313 (9th Cir. 1997) (holding that the purpose of the automatic stay is to "prevent[ ] dismemberment of the estate, ensure[ ] orderly liquidation, and grant[ ] the trustee time to familiarize himself with the various rights and interests involved and the property available for distribution") (alterations in original); Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324, 1330 (10th Cir. 1984) (stating that the provisions of the automatic stay serve to "permit the debtor to organize his or her affairs without creditor harassment and to allow orderly resolution of all claims."); In re Calder, 907 F.2d 953 (10th Cir. 1990) (stating that actions taken in violation of the automatic stay are generally void, although certain exceptions may be recognized). The provisions of the automatic stay are an example of the Bankruptcy Code's adjustment of the rights of creditors to promote the Code's policy goals. See infra note 26 (discussing the goals of the Chapter 11 process).
147. See 11 U.S.C. § 1101 (providing for a "debtor in possession" in a Chapter 11 case); id. § 1107 (prescribing the rights, powers and duties of a debtor in possession); id. § 1108 (authorizing the continued operation of the debtor's business); Hirsch v. Pennsylvania Textile Corp., Inc. (In re Centennial Textiles, Inc.), 227 B.R. 606, 612 (Bankr. S.D.N.Y. 1998) (stating that "[a] debtor in possession owes the same fiduciary duty as a trustee to the creditors and the estate."); Unofficial Comm. of Equity Holders v. McManigle (In re Penick Pharmaceutical Inc.), 227 B.R. 229, 232 (Bankr. S.D.N.Y. 1998) (same). Although the normal procedure in Chapter 11 cases is for the debtor to continue in control, a trustee may be appointed to replace the debtor in possession "for cause, including fraud, dishonesty, incompetence, or gross management of the affairs of the debtor by current management . . . ." 11 U.S.C. § 1104(a)(1); see also id. § 1106 (specifying the duties of a trustee appointed in a Chapter 11 case); In re Ionosphere Clubs, Inc., 113 B.R. 164, 168 (Bankr. S.D.N.Y 1990) (adopting the view that "[t]he philosophy of chapter 11 is to give the debtor a 'second chance' and, consistent with such philosophy, current management should be permitted to identify and correct its past mistakes."). See generally Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 354, 352-53 (1985) (discussing the trustee's duties, including the duty to maximize the value of the debtor's bankruptcy estate).
148. See In re 203 North LaSalle St. Ltd. Partnership, 190 B.R. 567, 573 (Bankr. N.D. III. 1995).
149. See id. at 577.
150. See id. at 573.
151. See id. at 576.
152. See id. at 594-95.
153. See LaSalle, 119 S. Ct. 1411, 1414 (1999); see also 11 U.S.C. § 506(a) (1994 & Supp. III 1997) (providing that "[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim"); Associates Commercial Corp. v. Rash, 117 S. Ct. 1879, 1884-85 (1997) (discussing the operation of section 506(a)); United States v. Ron Pair Enters., Inc., 489 U.S. 235, 238-39 (1989) (same).
154. See 11 U.S.C. § 1123(a)(1) (requiring the classification of claims). See also supra note 60 and accompanying text (discussing the classification of claims incident to formulation of a Chapter 11 plan); 11 U.S.C. § 1111(b) (generally permitting a secured creditor to elect to have the entire amount of his or her claim treated as a secured claim notwithstanding section 506(a)). A plan proponent's ability to classify claims is a significant function: how claims are classified may determine their relative voting rights and, possibly, how they are treated under the plan in comparison to other claims. Obviously, the power to classify claims has obvious implications in the plan confirmation process, and courts disagree on the correct standard of classification to apply in the Chapter 11 context. See Brunstad, Sigal & Schorling, supra note 2, at 1423-26 (discussing the broadly conflicting case law). Application of our theory of competitive choice may help resolve this conflict. Analysis of the relevant classification issues, however, is beyond the scope of this Article.
155. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 576; see also supra note 74 (citing the text of section 1129(b)(2)(A) governing the treatment of secured claims in the cram down context); Aetna Realty Investors, Inc. v. Monarch Beach Venture, Ltd. (In re Monarch Beach Venture, Ltd.), 166 B.R. 428, 433-34 (C.D. Cal. 1993) (discussing the requirements of section 1129(b)(2)(A) applicable to secured claims).
156. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 576.
157. See LaSalle, 119 S. Ct. at 1415.
158. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 573.
159. See id. at 576. The debtor's election to place unsecured trade claims in their own class apart from the Bank's unsecured deficiency claim, and then to treat the two claims differently (i.e., the trade would be paid in full, but the Bank's claim would not) raises interesting and difficult classification issues. See supra notes 57, 60 & 119 (discussing the debtor's ability to classify claims). It also raises an interesting issue of unfair discrimination. See 11 U.S.C. § 1129(b)(1) (prohibiting, without defining, unfair discrimination in the cram down context); supra note 72 (discussing the unfair discrimination standard). These issues were not raised or addressed by the Supreme Court in LaSalle, and their detailed examination is beyond the scope of this Article.
160. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 576.
161. See id. The partners also agreed to waive their unsecured claims against the debtor. See id. On a comparative basis, the partners' contributions aggregated approximately 16% of the debtor's aggregate prepetition indebtedness. Thus, on a net basis, repayment of the unpaid portion of the Bank's secured claim would come exclusively from the operations of the reorganized debtor.
162. See LaSalle, 119 S. Ct. at 1415.
163. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 576.
164. See LaSalle, 119 S. Ct. at 1415-16; see also 11 U.S.C. § 1129(a)(7) (1994 & Supp. III 1997) (requiring as a condition to confirmation that the plan must provide a better recovery to objecting creditors than they would receive through liquidation of the debtor's property); LaSalle, 119 S. Ct. at 1415 n.13 (describing the best interest of creditors test of section 1129(a)(7)); In re The Leslie Fay Companies, Inc., 207 B.R. 764, 787 (Bankr. S.D.N.Y. 1997) (same).
165. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 576.
166. See id. Presumably, the Bank, in its economic judgment, either believed that pursing its foreclosure action would make it better off, or that it had a right to better treatment in the Chapter 11 process.
167. See LaSalle, 119 S. Ct. at 1415; 11 U.S.C. § 1129(b); supra notes 69-76 and accompanying text (discussing the cram down procedure).
168. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 586-88. In reaching this conclusion, the court determined that the plan satisfied the absolute priority rule, concluding that the debtor's partners received their new partnership interests on account of their new capital contributions, and not their old interests. See id.
169. See In re 203 N. LaSalle St. Partnership, 126 F.3d 955, 970 (7th Cir. 1997).
170. See 203 North LaSalle St. Ltd. Partnership, 190 B.R. at 586-87; see also 11 U.S.C. § 1129(b)(2)(B)(ii); supra notes 72-76, 78-84, 92 and accompanying text (discussing the fair and equitable standard).
171. See 203 North LaSalle St. Ltd. Partnership , 190 B.R. at 586.
172. LaSalle, 119 S. Ct. at 1424.
173. See Caminetti v. United States, 242 U.S. 470, 485 (1917) (stating that "[i]t is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain, and if the law is within the constitutional authority of the law-making body which passed it, the sole function of the courts is to enforce it according to its terms. . . . Where the language is plain and admits of no more than one meaning the duty of interpretation does not arise, and the rules which are to aid doubtful meanings need no discussion."); see also supra note 37 (discussing the plain meaning rule and citing cases).
174. LaSalle, 119 S. Ct. at 1417. We hasten to add, however, that the point of this observation is not to criticize the Court's initial point of departure, particularly given the fact that, later on in the opinion, the majority does parse the statute. See infra notes 143-53 and accompanying text. Rather, the point is that, in construing the Code, the Court sought in the first instance (and, ultimately, the last) to properly contextualize its overall analysis. In this respect, the Court's discussion calls to mind the famous advice of Justice Roger Traynor: "Courts keep the law straight on its course. That high responsibility should not be reduced to a mean task of keeping the law straight and narrow. It calls for literate, not literal, judges." Roger J. Traynor, Reasoning in a Circle of Law, 56 VA. L. REV. 739, 749 (1970). It is also consistent with the general rule that courts typically construe codified judicial doctrines in a manner consistent with their historical understandings. See United States v. Noland, 517 U.S. 535, 539 (1996) (stating the rule that, when Congress enacts a statute that makes reference to a pre-existing, judicially created doctrine, the reference "clearly indicates congressional intent at least to start with existing doctrine."); see also Lehigh Valley Coal Co. v. Yensavage, 218 F. 547, 553 (2d Cir. 1914) (L. Hand, J.) (stating that "statutes should be construed, not as theorums of Euclid, but with some imagination of the purposes which lie behind them").
175. See LaSalle, 119 S. Ct. at 1417. The Court observed: "The reason for such a limitation was the danger inherent in any reorganization plan proposed by a debtor, then and now, that the plan will simply turn out to be too good a deal for the debtor's owners." Id. Such a result would undermine normative commercial expectations. See supra note 84 and accompanying text (discussing this point).
176. LaSalle, 119 S. Ct. at 1419.
177. Id. at 1419.
178. See id. at 1419-23.
179. See id. at 1419.
180. See id. at 1419-20.
181. See id. at 1420; see also supra note 73 (discussing the analogy of the chancellor's foot).
182. See LaSalle, 119 S. Ct. at 1420.
183. See id. The Court observed: The degree of causation is the final bone of contention. We understand the Government, as amicus curiae, to take the starchy position not only that any degree of causation between earlier interests and retained property will activate the bar to a plan providing for later property, . . . but also that whenever the holders of equity in the Debtor end up with some property there will be some causation; when old equity, and not someone on the street, gets property the reason is res ipsa loquitur. An old equity holder simply cannot take property under a plan if creditors are not paid in full. Id.
184. See id. at 1421.
185. 11 U.S.C. § 1129(b)(2)(B)(ii) (1994 & Supp. III 1997).
186. LaSalle, 119 S. Ct. at 1420. The Court stated: "On this assumption, reading the provision as a blanket prohibition would leave 'on account of' as a redundancy, contrary to the interpretive obligation to try and give meaning to all the statutory language." Id. (citations omitted).
187. Id.
188. Id. The Court's view of the twin purposes of bankruptcy law has numerous supporting antecedents. See supra note 26 (discussing a number of the relevant precedents).
189. See Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 123-27 (1991) (explaining that a debtor will tend to take greater risks in an attempt to increase returns as it sinks deeper into insolvency); Devra L. Golbe, The Effects of Imminent Bankruptcy on Stockholder Risk Preferences and Behavior, 12 BELL J. ECON. 321, 326 (1981) (same); JACKSON, supra note, 28 at 205 (same); Lynn M. LoPucki, A General Theory of the Dynamics of the State Remedies/Bankruptcy System, 1982 WIS. L. REV. 311, 321-22 (1992) (observing that, when a debtor's liabilities exceed his or her assets, "the debtor is motivated in the direction of high risk investment" because "high risk investment, regardless of its intrinsic merits, may offer the only possibility that the debts will be repaid and that there will be something remaining for the debtor."); Miller, supra note 55, at 40 (same); see also Frank H. Easterbrook & Daniel R. Fischel, Voting in Corporate Law, 26 J.L. & Econ. 395, 404 (1983) (observing that "[w]hen the firm is in distress, the shareholders' residual claim goes under water, and they lose the appropriate incentives").
190. See Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 123-27 (1991) (explaining that a debtor will tend to take greater risks in an attempt to increase returns as it sinks deeper into insolvency); Devra L. Golbe, The Effects of Imminent Bankruptcy on Stockholder Risk Preferences and Behavior, 12 BELL J. ECON. 321, 326 (1981) (same); JACKSON, supra note, 28 at 205 (same); Lynn M. LoPucki, A General Theory of the Dynamics of the State Remedies/Bankruptcy System, 1982 WIS. L. REV. 311,
191. See Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 123-27 (1991) (explaining that a debtor will tend to take greater risks in an attempt to increase returns as it sinks deeper into insolvency); Devra L. Golbe, The Effects of Imminent Bankruptcy on Stockholder Risk Preferences and Behavior, 12 BELL J. ECON. 321, 326 (1981) (same); JACKSON, supra note, 28 at 205 (same); Lynn M. LoPucki, A General Theory of the Dynamics of the State Remedies/Bankruptcy System, 1982 WIS. L. REV. 311, 321-22 (1992) (observing that, when a debtor's liabilities exceed his or her assets, "the debtor is motivated in the direction of high risk investment" because "high risk investment, regardless of its intrinsic merits, may offer the only possibility that the debts will be repaid and that there will be something remaining for the debtor."); Miller, supra note 55, at 40 (same); see also Frank H. Easterbrook & Daniel R. Fischel, Voting in Corporate Law, 26 J.L. & Econ. 395, 404 (1983) (observing that "[w]hen the firm is in distress, the shareholders' residual claim goes under water, and they lose the appropriate incentives").
192. See Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 123-27 (1991) (explaining that a debtor will tend to take greater risks in an attempt to increase returns as it sinks deeper into insolvency); Devra L. Golbe, The Effects of Imminent Bankruptcy on Stockholder Risk Preferences and Behavior, 12 BELL J. ECON. 321, 326 (1981) (same); JACKSON, supra note, 28 at 205 (same); Lynn M. LoPucki, A General Theory of the Dynamics of the State Remedies/Bankruptcy System, 1982 WIS. L. REV. 311, 321-22 (1992) (observing that, when a debtor's liabilities exceed his or her assets, "the debtor is motivated in the direction of high risk investment" because "high risk investment, regardless of its intrinsic merits, may offer the only possibility that the debts will be repaid and that there will be something remaining for the debtor."); Miller, supra note 55, at 40 (same); see also Frank H. Easterbrook & Daniel R. Fischel, Voting in Corporate Law, 26 J.L. & Econ. 395, 404 (1983) (observing that "[w]hen the firm is in distress, the shareholders' residual claim goes under water, and they lose the appropriate incentives").
193. Cf. United Sav. Ass'n v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 363, 378 (1988) (commenting that "[t]he reorganized debtor is supposed to stand on his own two feet").
194. See LaSalle, 119 S. Ct. at 1422. Specifically, the Court stated: Which of these positions is ultimately entitled to prevail is not to be decided here, however, for even on the latter view the Bank's objection would require rejection of the plan at issue in this case. It is doomed, we can say without necessarily exhausting its flaws, by its provision for vesting equity in the reorganized business in the Debtor's partners without extending an opportunity to anyone else either to compete for that equity or to propose a competing reorganization plan. Id.
195. See id. More specifically, the Court reasoned: Upon the court's approval of [the] plan, the partners were in the same position that they would have enjoyed had they exercised an exclusive option under the plan to buy the equity in the reorganized entity, or contracted to purchase it from a seller who had first agreed to deal with no one else. . . . This opportunity should, first of all, be treated as an item of property in its own right. Id. (citations omitted).
196. Id.
197. Id.
198. Id. at 1422-23.
199. Id. at 1423.
200. Id. at 1423.
201. Id.
202. Id. n.28 (quoting Brunstad, Sigal & Schorling, supra note 2, at 1406 n.136). In addition, the Court added: " 'Consistent with this new approach, the Chapter 11 process relies on creditors and equity holders to engage in negotiations toward resolution of their interests.' " Id. n.28 (quoting Brunstad, Sigal & Schorling, supra note 2, at 1406 n.136). The Court's observation concerning creditor self-determination in the Chapter 11 context has numerous antecedents. For example, in Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988), the Court discussed the same concept in the context of overturning a new value plan premised on the debtor's contribution of future labor: The Court of Appeals may well have believed that petitioners or other unsecured creditors would be better off if respondents' reorganization plan was confirmed. But that determination is for the creditors to make in the manner specified by the Code. . . . Here, the principal creditors entitled to vote in the class of unsecured claims (i.e., petitioners) objected to the proposed reorganization. This was their prerogative under the Code, and courts applying the Code must effectuate their decision. Id. at 207. Similarly, the concept of permitting the parties to manage their own collective destiny was also a point that underscored the recommendations in 1973 by the Commission on the Bankruptcy Laws of the United States regarding proposed changes to the reorganization provisions of the former Bankruptcy Act. See REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, H.R. DOC. NO. 137, 93d Cong., 1st Sess., pt. I, at 253-58 (1973) [hereinafter COMMISSION REPORT] (discussing the prior law under the Bankruptcy Act and offering recommended changes, specifically with respect to application of the absolute priority rule). Under the prior law, corporations could restructure their affairs through confirmation of a plan of reorganization under the provisions of Chapter X, or, alternatively, through confirmation of an arrangement under Chapter XI. See Bankruptcy Act § 306(3), 11 U.S.C. § 706 (repealed 1979) (providing that corporations were eligible for relief under Chapter XI); Bankruptcy Act § 106(5), 11 U.S.C. § 506 (repealed 1979) (providing that Chapter X was applicable only to corporations). The issue of whether a corporation properly belonged in Chapter X or Chapter XI turned on "the needs to be served." General Stores Corp. v. Shlensky, 350 U.S. 462, 466 (1956); see also Securities & Exch. Comm'n v. United States Realty & Improvement Co., 310 U.S. 434, 446-453 (1940) (discussing differences between Chapter X and Chapter XI); Bankruptcy Act § 306(3), 11 U.S.C. § 706 (repealed 1979) (providing that an individual or partnership engaged in business could be eligible for relief under Chapter XI). In addition, relief was also available under the reorganization provisions of Chapter XII pertaining to certain real property arrangements. See Bankruptcy Act § 406(6), 11 U.S.C. § 806 (repealed). As pointed out in the Commission Report, the prior law was, alternatively, overly rigid, or overly permissive with respect to the rights of creditors: Present Chapters XI and XII prescribe a different standard of fairness than Chapter X. Chapters XI and XII essentially leave the fairness of the plan to the bargain of the parties, with the minimum requirement that creditors receive the liquidation value of the assets. Only to the extent creditors are able to bargain successfully with the debtor are they able to share in the excess of the going concern value of the business over the liquidation value of the assets. Present Chapter X, on the other hand, precludes any participation by equity security holders and junior creditors, unless senior creditors receive full compensation for their claims. In determining whether full compensation is given to senior claimants, the court must determine the going concern value of the business and allocate this value to the senior creditors; only when their claims are fully compensated is anything passed on down the line. The Commission has concluded that neither standard of fairness is appropriate. There is no justification for equity security holders, partners, or an individual debtor to receive an interest in the reorganized business when creditors receive less than full compensation, unless the retained interest reasonably approximates the value of the new contribution . . . . With respect to the Chapter X test of fairness, it also seems improper [because it fails to permit arrangements in cases in which the parties find it advantageous to vary the absolute priority rule on a consensual basis]. COMMISSION REPORT, supra, at 253-54.
203. LaSalle, 119 S. Ct. at 1423-24.
204. Id. at 1424.
205. Id.
206. See JACKSON, supra note 28, at 35-57 (discussing the conversion of non-bankruptcy rights into bankruptcy claims); 11 U.S.C. § 101(5) (1994 & Supp. III 1997) (defining the term "claim" for bankruptcy purposes broadly as any "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured."); In re Udell, 18 F.3d 403, 406 (7th Cir. 1994) (stating that "[b]y fashioning a single definition of 'claim' for the 1978 Bankruptcy Code, Congress intended to adopt the broadest available definition of that term") (citations omitted); see also 11 U.S.C. § 501 (providing for the filing of proofs of claims and proofs of interests); id. § 365 (dealing with the assumption or rejection of executory contracts); id. § 507 (prescribing certain payment priorities); id. § 1123(a)(5) (stating that a plan may provide for, among other things, the transfer or sale of assets, the modification of liens, and the issuance of securities).
207. A market is, in essence, a social institution, and these are "created by the law or are dependent on it." Coase, supra note 43, at 28.
208. The courts of piepowder enforced the law merchant, and made their appearance in England in the middle of the thirteenth century. See Charles A. Bane, From Holt and Mansfield to Story to Llewellyn and Mentschikoff: The Progressive Development of Commercial Law, 37 U. MIAMI L. REV. 351, 353 (1983). The court's jurisdiction was confined to disputes arising at the local fair. Justice was swift and informal: The proceedings were held in a shed . . . , probably resembling more a street corner argument than a modern trial. It was justice on the spot, with no delays. In Colchester in 1458, a merchant-creditor sued in a piepowder court at eight o'clock in the morning to recover a debt. He won a default judgment at noon and attached the debtor's goods by four o'clock that afternoon. Id. (citing 23 SELDEN SOCIETY, SELECT CASES CONCERNING THE LAW MERCHANT I, 122, 122-25 (1908)) ; see also 1 WILLIAM HOLDSWORTH, A HISTORY OF ENGLISH LAW 536 (7th ed. 1956) (discussing the attachment of a debtor's goods by order of a court of piepowder).
209. The courts of piepowder enforced the law merchant, and made their appearance in England in the middle of the thirteenth century. See Charles A. Bane, From Holt and Mansfield to Story to Llewellyn and Mentschikoff: The Progressive Development of Commercial Law, 37 U. MIAMI L. REV. 351, 353 (1983). The court's jurisdiction was confined to disputes arising at the local fair. Justice was swift and informal: The proceedings were held in a shed . . . , probably resembling more a street corner argument than a modern trial. It was justice on the spot, with no delays. In Colchester in 1458, a merchant-creditor sued in a piepowder court at eight o'clock in the morning to recover a debt. He won a default judgment at noon and attached the debtor's goods by four o'clock that afternoon. Id. (citing 23 SELDEN SOCIETY, SELECT CASES CONCERNING THE LAW MERCHANT I, 122, 122-25 (1908)) ; see also 1 WILLIAM HOLDSWORTH, A HISTORY OF ENGLISH LAW 536 (7th ed. 1956) (discussing the attachment of a debtor's goods by order of a court of piepowder).
210. The courts of piepowder enforced the law merchant, and made their appearance in England in the middle of the thirteenth century. See Charles A. Bane, From Holt and Mansfield to Story to Llewellyn and Mentschikoff: The Progressive Development of Commercial Law, 37 U. MIAMI L. REV. 351, 353 (1983). The court's jurisdiction was confined to disputes arising at the local fair. Justice was swift and informal: The proceedings were held in a shed . . . , probably resembling more a street corner argument than a modern trial. It was justice on the spot, with no delays. In Colchester in 1458, a merchant-creditor sued in a piepowder court at eight o'clock in the morning to recover a debt. He won a default judgment at noon and attached the debtor's goods by four o'clock that afternoon. Id. (citing 23 SELDEN SOCIETY, SELECT CASES CONCERNING THE LAW MERCHANT I, 122, 122-25 (1908)) ; see also 1 WILLIAM HOLDSWORTH, A HISTORY OF ENGLISH LAW 536 (7th ed. 1956) (discussing the attachment of a debtor's goods by order of a court of piepowder).
211. See Rusch, supra note 2, at 1336 (arguing that "[b]ankruptcy issues should be evaluated . . . based upon explicit identification and reconciliation of conflicting societal values"); Elizabeth Warren, Bankruptcy Policy, 54 U. CHI. L. REV. 775, 777 (1987) (arguing that bankruptcy law is "an attempt to reckon with a debtor's multiple defaults and to distribute the consequences among a number of different actors. Bankruptcy encompasses a number of competing - and sometimes conflicting - values in this distribution. As I see it, no one value dominates, so that bankruptcy policy becomes a composite of factors that bear on a better answer to the question, 'How shall the losses be distributed?' "); see also id. at 776 (observing that "[c]urrently, the policies endorsed to support bankruptcy pronouncements are wide-ranging and, at the extremes, very much in opposition").
212. See also In re Kopstein, 163 B.R. 573, 574-75 (Bankr. N.D. Cal. 1994) (arguing that "[t]he bankruptcy laws are first and foremost intended to maintain a viable property-owning middle class, as such citizens are the backbone of this society and the source of its stability"); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 158 (1935) (arguing that modern bankruptcy law protects the public interest); Baird, supra note 2, at 579-80 & 598 (discussing the views of traditional bankruptcy scholars, and observing that having a bankruptcy law may help alleviate political pressure to provide public subsidies for insolvent firms); Elizabeth Warren, Bankruptcy Policymaking in an Imperfect World, 92 MICH. L. REV. 336, 343- 44 (arguing that bankruptcy law "aims, with greater or lesser efficacy, toward four principal goals: (1) to enhance the value of the failing debtor; (2) to distribute value according to multiple normative principles; (3) to internalize the costs of business failures to the parties dealing with the debtor; and (4) to create reliance on private monitoring"). Compare In re All Media Properties, Inc., 5 B.R. 126, 137 (Bankr. S.D. Tex. 1980) (stating that "[t]he purpose of an involuntary [bankruptcy] procedure is to provide a method for creditors to protect their rights against debtors who are not meeting their debts"), with Atlas Machine & Iron Works, Inc. v. Bethlehem Steel Corp., 986 F.2d 709, 716 n.11 (4th Cir. 1993) (stating that "[d]ebt collection is not a proper purpose of bankruptcy").
213. See also In re Kopstein, 163 B.R. 573, 574-75 (Bankr. N.D. Cal. 1994) (arguing that "[t]he bankruptcy laws are first and foremost intended to maintain a viable property-owning middle class, as such citizens are the backbone of this society and the source of its stability"); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 158 (1935) (arguing that modern bankruptcy law protects the public interest); Baird, supra note 2, at 579-80 & 598 (discussing the views of traditional bankruptcy scholars, and observing that having a bankruptcy law may help alleviate political pressure to provide public subsidies for insolvent firms); Elizabeth Warren, Bankruptcy Policymaking in an Imperfect World, 92 MICH. L. REV. 336, 343-44 (arguing that bankruptcy law "aims, with greater or lesser efficacy, toward four principal goals: (1) to enhance the value of the failing debtor; (2) to distribute value according to multiple normative principles; (3) to internalize the costs of business failures to the parties dealing with the debtor; and (4) to create reliance on private monitoring"). Compare In re All Media Properties, Inc., 5 B.R. 126, 137 (Bankr. S.D. Tex. 1980) (stating that "[t]he purpose of an involuntary [bankruptcy] procedure is to provide a method for creditors to protect their rights against debtors who are not meeting their debts"), with Atlas Machine & Iron Works, Inc. v. Bethlehem Steel Corp., 986 F.2d 709, 716 n.11 (4th Cir. 1993) (stating that "[d]ebt collection is not a proper purpose of bankruptcy").
214. See Miller, supra note 18, at 431 (discussing the role of the bankruptcy judge); see also Baird, supra note 2, at 579 & 593 (discussing the traditional view of bankruptcy judges). Embracing the traditional account, one court has described the role of bankruptcy law, and the bankruptcy judge, using the following images: Bankruptcy serves a role in corporate life eerily similar to that of the doctrine of reincarnation . . . . Bankruptcy is the belief that the souls of a corporate entity, the equityholders, do not just vanish when their corporeal form dies. Rather, they learn from the mistakes of a previous incarnation and can once again live on the earth in corporate form. . . . The close cousins of the equityholders, the debtholders, take little spiritual comfort from the knowledge that the equityholders may someday be reincorporated. Instead, they are more aware of the anguish of their personal loss, the money they loaned the deceased corporation. It is at this point that the black robed judge steps in . . . . Perhaps the corporation has left behind some small amount of worldly goods, some trinkets to remind the debt-holders of their friendship with the departed. Ah, but how to divide the estate so that everyone can have some little item of memorabilia? This is a question of great spiritual and temporal import. Fortunately, the [Bankruptcy Act] can provide guidance and inspiration. It is written . . . that bankruptcy judges have great latitude in comforting those left behind. Gary Aircraft Corp. v. United States (In re Gary Aircraft Corp.), 698 F.2d 775, 779-80 (5th Cir. 1983).
215. See KAREN GROSS, FAILURE AND FORGIVENESS, REBALANCING THE BANKRUPTCY SYSTEM 2-3 (1997) (arguing that bankruptcy law should change its priority and other features to provide more protection to disadvantaged constituencies); Robert S. Greenberger, Creditor Rights in Realty Reorganizations Aided, WALL ST. J., May 4, 1999, at B14 (arguing that the LaSalle decision "bolstered the rights of creditors"); Reaction to Supreme Court Decision in 203 North LaSalle, 34 BANKR. CT. DEC., May 25, 1999, at A5 (reporting various commentary on the LaSalle decision, including "[t]his was a bad decision for debtors," and "[t]his is a complete victory. Banks are going to be able to prevent debtors from dealing only with themselves."); Katherine Q. Seelye, First Lady in a Messy Fight on the Eve of Her Campaign, N.Y. TIMES, June 27, 1999, at A1, A17 (describing one criticism of one current proposal for bankruptcy reform as unfair to women and children).
216. See KAREN GROSS, FAILURE AND FORGIVENESS, REBALANCING THE BANKRUPTCY SYSTEM 2-3 (1997) (arguing that bankruptcy law should change its priority and other features to provide more protection to disadvantaged constituencies); Robert S. Greenberger, Creditor Rights in Realty Reorganizations Aided, WALL ST. J., May 4, 1999, at B14 (arguing that the LaSalle decision "bolstered the rights of creditors"); Reaction to Supreme Court Decision in 203 North LaSalle, 34 BANKR. CT. DEC., May 25, 1999, at A5 (reporting various commentary on the LaSalle decision, including "[t]his was a bad decision for debtors," and "[t]his is a complete victory. Banks are going to be able to prevent debtors from dealing only with themselves."); Katherine Q. Seelye, First Lady in a Messy Fight on the Eve of Her Campaign, N.Y. TIMES, June 27, 1999, at A1, A17 (describing one criticism of one current proposal for bankruptcy reform as unfair to women and children).
217. See KAREN GROSS, FAILURE AND FORGIVENESS, REBALANCING THE BANKRUPTCY SYSTEM 2-3 (1997) (arguing that bankruptcy law should change its priority and other features to provide more protection to disadvantaged constituencies); Robert S. Greenberger, Creditor Rights in Realty Reorganizations Aided, WALL ST. J., May 4, 1999, at B14 (arguing that the LaSalle decision "bolstered the rights of creditors"); Reaction to Supreme Court Decision in 203 North LaSalle, 34 BANKR. CT. DEC., May 25, 1999, at A5 (reporting various commentary on the LaSalle decision, including "[t]his was a bad decision for debtors," and "[t]his is a complete victory. Banks are going to be able to prevent debtors from dealing only with themselves."); Katherine Q. Seelye, First Lady in a Messy Fight on the Eve of Her Campaign, N.Y. TIMES, June 27, 1999, at A1, A17 (describing one criticism of one current proposal for bankruptcy reform as unfair to women and children).
218. See KAREN GROSS, FAILURE AND FORGIVENESS, REBALANCING THE BANKRUPTCY SYSTEM 2-3 (1997) (arguing that bankruptcy law should change its priority and other features to provide more protection to disadvantaged constituencies); Robert S. Greenberger, Creditor Rights in Realty Reorganizations Aided, WALL ST. J., May 4, 1999, at B14 (arguing that the LaSalle decision "bolstered the rights of creditors"); Reaction to Supreme Court Decision in 203 North LaSalle, 34 BANKR. CT. DEC., May 25, 1999, at A5 (reporting various commentary on the LaSalle decision, including "[t]his was a bad decision for debtors," and "[t]his is a complete victory. Banks are going to be able to prevent debtors from dealing only with themselves."); Katherine Q. Seelye, First Lady in a Messy Fight on the Eve of Her Campaign, N.Y. TIMES, June 27, 1999, at A1, A17 (describing one criticism of one current proposal for bankruptcy reform as unfair to women and children).
219. See JACKSON, supra note 28, at 3 (stating that "[b]ankruptcy law, at its core, is debt-collection law. This is what we all agree on."); see also id. at 5 (arguing that "[w]hen one is dealing with firms, the question is how to convert ownership of the assets from the debtor to its creditors, not how to leave assets with the debtor."); Alfred Hill, The Erie Doctrine in Bankruptcy, 66 HARV. L. REV. 1013, 1035 (1953) (observing that the purpose of bankruptcy law is "to provide a system for the effectuation of what are for the most part state-created rights"); Thomas H. Jackson, Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors' Bargain, 91 YALE L.J. 857, 860 (1982) (arguing that bankruptcy law should mirror the ex ante agreement that "one would expect the creditors to form among themselves were they able to negotiate such an agreement from an ex ante position."); Warren, supra note 171, at 777 (observing that, under the approach embraced by Thomas Jackson and others, "the only goal of bankruptcy is to enhance the collection efforts of creditors with state-defined property rights").
220. See JACKSON, supra note 28, at 3 (stating that "[b]ankruptcy law, at its core, is debt- collection law. This is what we all agree on."); see also id. at 5 (arguing that "[w]hen one is dealing with firms, the question is how to convert ownership of the assets from the debtor to its creditors, not how to leave assets with the debtor."); Alfred Hill, The Erie Doctrine in Bankruptcy, 66 HARV. L. REV. 1013, 1035 (1953) (observing that the purpose of bankruptcy law is "to provide a system for the effectuation of what are for the most part state-created rights"); Thomas H. Jackson, Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors' Bargain, 91 YALE L.J. 857, 860 (1982) (arguing that bankruptcy law should mirror the ex ante agreement that "one would expect the creditors to form among themselves were they able to negotiate such an agreement from an ex ante position."); Warren, supra note 171, at 777 (observing that, under the approach embraced by Thomas Jackson and others, "the only goal of bankruptcy is to enhance the collection efforts of creditors with state-defined property rights").
221. See Baird, supra note 2, at 579 & 595 (arguing that the bankruptcy judge's role does not include making decisions that the parties are better suited to make); Douglas G. Baird, The Uneasy Case for Corporate Reorganizations, 15 J. LEGAL STUD. 127, 137 (1986) (arguing that "[a] bankruptcy judge may be less able to cast a cold eye on an enterprise and make tough decisions than someone who has put his own money on the line. He may have no effective constraint analogous to the discipline a market imposes on competing buyers who make systematic errors. Like any other individual outside such constraints, he may tend to underestimate risks.").
222. See supra note 28 (citing cases and authorities).
223. See Baird, supra note 2, at 578-80 (arguing that scholars who embrace the economic account "worry intensely about how rules in bankruptcy affect behavior elsewhere" and that "ex ante effects are important"). See generally Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 VA. L. REV. 155, 156 (1989) (arguing that "[m]any bankruptcy rules require sharing of assets with other creditors, shareholders, and third parties. Too often these distributional effects are grouped together under general references to equity, wealth redistribution, or appeals to communitarian values. These labels are unhelpful. They disguise the fact, for instance, that the justification and impact of consensual risk sharing among creditors is entirely different in character from the rationale for using bankruptcy to redistribute wealth to nonconsensual third parties. Understanding these diverse effects requires, therefore, a method of discriminating among the different motivations that impel redistributions in bankruptcy."); id. at 157 (observing that "all [bankruptcy] participants share (at least in part) the risks of business failure," and discussing the "costs" of implementing certain distributional regimes).
224. See Skeel, supra note 2, at 223 (remarking that "[t]he Bankruptcy Code is designed to accommodate two very different goals: protection of creditors' rights and the promotion of successful reorganization of the debtor. . . . Unfortunately, application of the framework has been inconsistent. Bankruptcy has lacked a unifying vision, which, by demonstrating how the Code might further both of the seemingly contradictory goals, could assist in the interpretation of particular provisions.").
225. See Hon. Marjorie O. Rendell, In Search of Certainty, remarks made at the Induction of the Tenth Class of Fellows of the American College of Bankruptcy (Mar. 12, 1999) (on file with The Business Lawyer, University of Maryland School of Law) (commenting on the confused and confusing state of bankruptcy jurisprudence); Brunstad, Sigal & Schorling, supra note 2, at 1386-87, 1423-26 & 1445-46 (discussing some aspects of the "incoherence" of the current bankruptcy decisional law).
226. See Barry E. Adler, Financial and Political Theories of American Corporate Bankruptcy, 45 STAN. L. REV. 311 (1993) (offering a highly critical analysis of Chapter 11); Bradley & Rosenzweig, supra note 1, at 1049-50 (arguing that Chapter 11 should be repealed); see also Baird, supra note 2, at 598 (observing that scholars embracing the economic view of bankruptcy "often slight the virtues of a regime like Chapter 11").
227. Baird, supra note 2, at 597.
228. See Epling, supra note 2, at 337 (criticizing scholarly proposals generally as inaccessible and overly complicated); see also Baird, supra note 2, at 588 (offering the critique that scholars embracing the economic account "must be able to explain how [their] approach helps decide the disputes that bankruptcy judges face."). See generally Adler, supra note 181 (offering a theoretical model for an alternative to Chapter 11, but concluding that the model is probably infeasible); Philip Aghion et al., The Economics of Bankruptcy Reform, 8 J.L. ECON. & ORG. 523, 539-40 (1992) (proposing an alternative sale method); Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633, 635-36 (1993) (comparing the existing Chapter 11 process with a hypothetical auction regime); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775 (1988) (proposing an alternative sale method based on an option pricing approach); Mark J. Roe, Bankruptcy and Debt: A Model for Corporate Reorganization, 83 COLUM. L. REV. 527 (1983) (proposing an alternative sale method).
229. See Epling, supra note 2, at 337 (criticizing scholarly proposals generally as inaccessible and overly complicated); see also Baird, supra note 2, at 588 (offering the critique that scholars embracing the economic account "must be able to explain how [their] approach helps decide the disputes that bankruptcy judges face."). See generally Adler, supra note 181 (offering a theoretical model for an alternative to Chapter 11, but concluding that the model is probably infeasible); Philip Aghion et al., The Economics of Bankruptcy Reform, 8 J.L. ECON. & ORG. 523, 539-40 (1992) (proposing an alternative sale method); Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633, 635-36 (1993) (comparing the existing Chapter 11 process with a hypothetical auction regime); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775 (1988) (proposing an alternative sale method based on an option pricing approach); Mark J. Roe, Bankruptcy and Debt: A Model for Corporate Reorganization, 83 COLUM. L. REV. 527 (1983) (proposing an alternative sale method).
230. See Epling, supra note 2, at 337 (criticizing scholarly proposals generally as inaccessible and overly complicated); see also Baird, supra note 2, at 588 (offering the critique that scholars embracing the economic account "must be able to explain how [their] approach helps decide the disputes that bankruptcy judges face."). See generally Adler, supra note 181 (offering a theoretical model for an alternative to Chapter 11, but concluding that the model is probably infeasible); Philip Aghion et al., The Economics of Bankruptcy Reform, 8 J.L. ECON. & ORG. 523, 539-40 (1992) (proposing an alternative sale method); Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633, 635-36 (1993) (comparing the existing Chapter 11 process with a hypothetical auction regime); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775 (1988) (proposing an alternative sale method based on an option pricing approach); Mark J. Roe, Bankruptcy and Debt: A Model for Corporate Reorganization, 83 COLUM. L. REV. 527 (1983) (proposing an alternative sale method).
231. See Epling, supra note 2, at 337 (criticizing scholarly proposals generally as inaccessible and overly complicated); see also Baird, supra note 2, at 588 (offering the critique that scholars embracing the economic account "must be able to explain how [their] approach helps decide the disputes that bankruptcy judges face."). See generally Adler, supra note 181 (offering a theoretical model for an alternative to Chapter 11, but concluding that the model is probably infeasible); Philip Aghion et al., The Economics of Bankruptcy Reform, 8 J.L. ECON. & ORG. 523, 539-40 (1992) (proposing an alternative sale method); Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J. LAW & ECON. 633, 635-36 (1993) (comparing the existing Chapter 11 process with a hypothetical auction regime); Lucian A. Bebchuck, A New Approach to Corporate Reorganizations, 101 HARV. L. REV. 775 (1988) (proposing an alternative sale method based on an option pricing approach); Mark J. Roe, Bankruptcy and Debt: A Model for Corporate Reorganization, 83 COLUM. L. REV. 527 (1983) (proposing an alternative sale method).
232. Baird, supra note 2, at 587; see also id. at 588 (observing that, under the economic approach, "bankruptcy law must defer to market forces to the same extent as other laws.").
233. Coase, supra note 43, at 28.
234. See supra note 19 (discussing this point).
235. See Baird, supra note 2, at 598 (recognizing the desirability of "ninety percent" of the current law).
236. See Ayer, supra note 2, at 1025 (observing that, although "[t]he effort to articulate 'theory' for bankruptcy and kindred subjects is certainly alive and well," none of these efforts has yet managed to capture the imagination of Congress and the courts) (citing JACKSON, supra note 28; Baird, supra note 176).
237. Moreover, as indicated previously, we offer no position on the issue whether the benefits of the current reorganization law outweigh the costs, or whether Chapter 11 should be fundamentally rewritten. See supra note 43 (making this point).
238. On the contrary, having a certain amount of debt has advantages. See generally Alan Schwartz, A Theory of Loan Priorities, 18 J. LEG. STUD. 209 (1989) (discussing the incentives that firms have to finance projects with debt rather than equity). In general, creditors lend money to debtors in order to make money themselves. At bottom, debtors provide this opportunity by offering their "entrepreneurial skills" in the handling of the creditor's funds. Douglas G. Baird & Thomas H. Jackson, Fraudulent Conveyance Law and its Proper Domain, 38 VAND. L. REV. 829, 834 (1985). This involves some amount of risk-taking on the part of both the creditor and the debtor. The creditor takes the risk that the debtor will not be able to repay the loan as promised in exchange for the anticipated benefit of receiving repayment with interest and certain rights to enforce repayment. The debtor takes the risk that its proposed use of the funds will turn out to be unprofitable, and that the creditor will collect payment from the debtor's other property, in exchange for the upside profit if the venture proves to be successful. See supra note 84 (discussing this point). As noted by one commentator, "if gambling with another's money is wrong, then it would be logical to outlaw credit transactions." John C. McCoid, Jr., Constructively Fraudulent Conveyances: Transfers for Inadequate Consideration, 62 TEX. L. REV. 639, 657 (1983). But it does not follow that all risk-taking is therefore acceptable. As the Supreme Court noted long ago: a firm's capital ought not to be "a foot-ball to be thrown into the market for the purposes of speculation . . . ." Upton v. Tribilcock, 91 U.S. (1 Otto) 45, 48 (1875). The question becomes one of how the law establishes appropriate limits and manages incentives.
239. On the contrary, having a certain amount of debt has advantages. See generally Alan Schwartz, A Theory of Loan Priorities, 18 J. LEG. STUD. 209 (1989) (discussing the incentives that firms have to finance projects with debt rather than equity). In general, creditors lend money to debtors in order to make money themselves. At bottom, debtors provide this opportunity by offering their "entrepreneurial skills" in the handling of the creditor's funds. Douglas G. Baird & Thomas H. Jackson, Fraudulent Conveyance Law and its Proper Domain, 38 VAND. L. REV. 829, 834 (1985). This involves some amount of risk-taking on the part of both the creditor and the debtor. The creditor takes the risk that the debtor will not be able to repay the loan as promised in exchange for the anticipated benefit of receiving repayment with interest and certain rights to enforce repayment. The debtor takes the risk that its proposed use of the funds will turn out to be unprofitable, and that the creditor will collect payment from the debtor's other property, in exchange for the upside profit if the venture proves to be successful. See supra note 84 (discussing this point). As noted by one commentator, "if gambling with another's money is wrong, then it would be logical to outlaw credit transactions." John C. McCoid, Jr., Constructively Fraudulent Conveyances: Transfers for Inadequate Consideration, 62 TEX. L. REV. 639, 657 (1983). But it does not follow that all risk-taking is therefore acceptable. As the Supreme Court noted long ago: a firm's capital ought not to be "a foot-ball to be thrown into the market for the purposes of speculation . . . ." Upton v. Tribilcock, 91 U.S. (1 Otto) 45, 48 (1875). The question becomes one of how the law establishes appropriate limits and manages incentives.
240. On the contrary, having a certain amount of debt has advantages. See generally Alan Schwartz, A Theory of Loan Priorities, 18 J. LEG. STUD. 209 (1989) (discussing the incentives that firms have to finance projects with debt rather than equity). In general, creditors lend money to debtors in order to make money themselves. At bottom, debtors provide this opportunity by offering their "entrepreneurial skills" in the handling of the creditor's funds. Douglas G. Baird & Thomas H. Jackson, Fraudulent Conveyance Law and its Proper Domain, 38 VAND. L. REV. 829, 834 (1985). This involves some amount of risk-taking on the part of both the creditor and the debtor. The creditor takes the risk that the debtor will not be able to repay the loan as promised in exchange for the anticipated benefit of receiving repayment with interest and certain rights to enforce repayment. The debtor takes the risk that its proposed use of the funds will turn out to be unprofitable, and that the creditor will collect payment from the debtor's other property, in exchange for the upside profit if the venture proves to be successful. See supra note 84 (discussing this point). As noted by one commentator, "if gambling with another's money is wrong, then it would be logical to outlaw credit transactions." John C. McCoid, Jr., Constructively Fraudulent Conveyances: Transfers for Inadequate Consideration, 62 TEX. L. REV. 639, 657 (1983). But it does not follow that all risk-taking is therefore acceptable. As the Supreme Court noted long ago: a firm's capital ought not to be "a foot-ball to be thrown into the market for the purposes of speculation . . . ." Upton v. Tribilcock, 91 U.S. (1 Otto) 45, 48 (1875). The question becomes one of how the law establishes appropriate limits and manages incentives.
241. For a more comprehensive discussion of these difficulties, see Brunstad, supra note 21.
242. See infra notes 199-214 (discussing this problem).
243. See infra notes 218-27 (discussing this problem).
244. See Baird, supra note 176, at 130-31 (observing that, "[F]or the most part, investors who pool their assets may divide rights of payout, control, withdrawal, and priority among themselves as they see fit. This fact of corporate law reflects the general principle that individuals can, for the most part, deploy their assets and enter into contracts as they please."); see also Douglas G. Baird & Thomas H. Jackson, Fraudulent Conveyance Law and its Proper Domain, 38 VAND. L. REV. 829, 836 (1985) (describing the normative premise of the "business judgment rule" that "a firm's investment decisions should be made by its managers even though that freedom necessarily conflicts to some extent with creditor security," and observing that "[t]his conflict motivates creditors to bargain for limitations on the ability of a debtor to engage in certain activities"). Exceptions to the general rule of legal noninterference with the discretion of managers to make investment decisions include legal restrictions on the investment activities of the managers of certain nonprofit organizations and trusts. See DEL. CODE ANN., tit. 12 § 3302 (1974).
245. See supra note 20 (citing authorities discussing this point).
246. See DEL. CODE. ANN., tit. 8 § 102(b)(7) (Supp. 1996); Zirn v. VLI Corp., 621 A.2d 773 (Del. 1993) (holding that a director's duty to disclose all material facts bearing on a merger arises under the duties of care and loyalty); Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) (holding that rebuttal of the business judgment rule will only be successful where the plaintiff can show that a director breached one of the triad of fiduciary duties: good faith, loyalty, or due care); Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (holding that minority shareholders were entitled to damages where a merger did not meet the test of fairness because of misrepresentations by directors). It should be noted that some jurisdictions permit firms to insulate managers from liability for breach of the duty of due care. See N.Y. BUS. CORP. LAW § 717 (McKinney 1999). Some jurisdictions, however, are more strict with respect to a manager's duty of loyalty. See DEL. CODE. ANN., title 8 § 102(b)(7) (Supp. 1996) (exempting duty of loyalty from a firm's ability to insulate directors from liability in breach of fiduciary duty actions); see also Litwin v. Allen, 25 N.Y.S.2d 667 (1940) (holding that a bank director is held to a stricter standard of accountability than the director of an average business, and, further, that the duty of care will rise and fall depending on the type of directorship, the facts of the case, the kind of corporation involved, its size and financial resources, the magnitude of the transaction in question, and the immediacy of the problem presented). To the extent that state law liberates a manager from liability for excessive risktaking, this may have the effect of adding fuel to the fire in the insolvency context, thus explaining in part why bankruptcy law supplies various supervisory restraints on managerial behavior. See infra note 229 (discussing some of the regulatory controls on debtors in Chapter 11 proceedings).
247. See Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305, 308 (1976) (discussing this problem). In economic terms, managers who shirk their responsibilities generate what is known as "agency costs." In general, the concept of "agency costs" refers to the costs associated with the corporate form of organization in which those with capital (e.g., shareholders) invest in the firm and allow skilled managers to act as their "agents" in managing the firm. As explained by one commentator, "the agency relationship exposes owners to the risk that managers will use owners' funds for management's benefit, thereby creating agency costs - the costs to the principal of obtaining faithful and effective performance by its agent." Edward S. Adams, Governance in Chapter 11 Reorganizations: Reducing Costs, Improving Results, 73 B.U.L. REV. 581, 601 (1993).
248. See Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305, 308 (1976) (discussing this problem). In economic terms, managers who shirk their responsibilities generate what is known as "agency costs." In general, the concept of "agency costs" refers to the costs associated with the corporate form of organization in which those with capital (e.g., shareholders) invest in the firm and allow skilled managers to act as their "agents" in managing the firm. As explained by one commentator, "the agency relationship exposes owners to the risk that managers will use owners' funds for management's benefit, thereby creating agency costs - the costs to the principal of obtaining faithful and effective performance by its agent." Edward S. Adams, Governance in Chapter 11 Reorganizations: Reducing Costs, Improving Results, 73 B.U.L. REV. 581, 601 (1993).
249. See Susan Rose-Ackerman, Risk Taking and Ruin: Bankruptcy and Investment Choice, 20 J. LEG. STUD. 277, 282 (1991) (making this point). Among other things, managers may wish to avoid losing their jobs, as well as any negative impact on their careers associated with the firm's failure. See PHILIP B. NELSON, CORPORATIONS IN CRISIS 98 (1981); infra note 212 (discussing likelihood that managers will lose their positions once the firm commences a bankruptcy proceeding).
250. See Susan Rose-Ackerman, Risk Taking and Ruin: Bankruptcy and Investment Choice, 20 J. LEG. STUD. 277, 282 (1991) (making this point). Among other things, managers may wish to avoid losing their jobs, as well as any negative impact on their careers associated with the firm's failure. See PHILIP B. NELSON, CORPORATIONS IN CRISIS 98 (1981); infra note 212 (discussing likelihood that managers will lose their positions once the firm commences a bankruptcy proceeding).
251. Similarly, creditors reap the benefits of the managers' normal incentives to make prudent investment decisions, augmented at times by contractual constraints, such as covenants prohibiting certain kinds of activities or behaviors. See Clifford W. Smith & Jerold B. Warner, On Financial Contracting: An Analysis of Bond Covenants, 7 J. FIN. ECON. 117, 122-24 (1979) (discussing types of contractual bond covenants designed to limit risky behavior); Miller, supra note 55, at 40 (explaining the use of restrictive covenants and monitoring to protect creditors "from risk-increasing change in the nature of a firm after their original bargain with it has been struck").
252. Two commentators explain this rule in the following terms: "Managers owe fiduciary duties to equity investors, but not debt investors or employees, because these claimants can contract at low cost, while the costs of [specifying the details of the relationship, including the rules and duties of managers] are prohibitively high for the residual claimants [i.e., equity holders]." Frank H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty, 36 J. LAW & ECON. 425, 437 (April 1993). Other commentators have suggested that other reasons may also explain the rule. See Roberta Romano, Comment on Easterbrook and Fischel, "Contract and Fiduciary Duty," 36 J. LAW & ECON. 447, 448 (1993) (suggesting that equity holders as a group may be relatively poor monitors as compared to their creditor colleagues, thus justifying their heightened protection).
253. Two commentators explain this rule in the following terms: "Managers owe fiduciary duties to equity investors, but not debt investors or employees, because these claimants can contract at low cost, while the costs of [specifying the details of the relationship, including the rules and duties of managers] are prohibitively high for the residual claimants [i.e., equity holders]." Frank H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty, 36 J. LAW & ECON. 425, 437 (April 1993). Other commentators have suggested that other reasons may also explain the rule. See Roberta Romano, Comment on Easterbrook and Fischel, "Contract and Fiduciary Duty," 36 J. LAW & ECON. 447, 448 (1993) (suggesting that equity holders as a group may be relatively poor monitors as compared to their creditor colleagues, thus justifying their heightened protection).
254. See Hanover Nat'l Bank v. Moyses, 186 U.S. 181, 188 (1902) (observing that creditors are entitled generally to payment from the debtor or the debtor's property); see also supra notes 75, 83-84 and accompanying text; infra note 287 (discussing the relative priority of senior claims over junior claims and equity interests, and the absolute priority rule's preservation of this hierarchical arrangement).
255. This reduction in value may be disproportionately felt among creditors. For example, secured creditors may suffer no harm if the value of their collateral remains stable, while unsecured creditors may suffer an erosion of their interests if the value of the debtor's unencumbered assets declines.
256. As one commentator has noted: If the firm's prospects are volatile, shareholders will want the managers to delay, in the hope of selling when the price is high. On average, however, delay will be costly. Equity claimants have reason to wait too long and to set unrealistic reservation prices, for their claims are worthless unless something unexpectedly good happens. Immediate sale at a realistic price wipes them out; debt claimants bear any erosion of value during a delay, yet have fixed claims and so do not realize the full gain if things turn out well. This is the standard conflict between debt and equity claims, and as usual is substantially aggravated during times of financial distress, when the equity claim is worth little. Frank E. Easterbrook, Is Corporate Bankruptcy Efficient?, 27 J. FIN. ECON. 411, 415 (1990).
257. See id.
258. Summarizing an insolvent debtor's potential gain from delay, and the potential costs to creditors, one commentator has explained as follows: Faced with the prospect of no payout, equity favors delay for two reasons. First, delay allows the firm to operate longer while the firm is insolvent but prior to final resolution of the bankruptcy, and thus prolongs the opportunity for a reversal of fortune large enough to return the firm to solvency and return equity investors to a stake in the firm. If equity can control the firm, moreover, it can increase the risk of the debtor's investments and thereby enhance this opportunity. However unlikely the reversal of fortune, and whatever the cost to creditors of the protraction - directly or from investment risk unjustified by expected returns - equity gains from prolongation of its option on the firm's value. Second, the costs of the protracted procedure itself provide equity with an advantage. Even without a realistic hope that the debtor will become solvent, equity can impose the costs of delay until it wrests an extracontractual settlement from senior claimants. Equity, if able, may hold the debtor hostage and allow it to deteriorate in order to extract ransom from the debtor's contractual owners, the creditors. Barry E. Adler, Bankruptcy and Risk Allocation, 77 CORNELL L. REV. 439, 448-49 (1992) (footnotes omitted).
259. STEPHEN A. ROSS ET AL., CORPORATE FINANCE 421-22 (4th ed. Irwin 1996). In economic terms, the motivations that the equity holders have to speculate with the firm's assets are known as "perverse incentives." See David A. Skeel, An Evolutionary Theory of Corporate Law and Corporate Bankruptcy, 51 VAND. L. REV. 1325, 1333 (1988) (discussing "perverse incentives"). See generally Stewart C. Myers, Determinants of Corporate Borrowing, 5 J. FIN. ECON. 147 (1977) (discussing managerial behavior). Similarly, the problem created by these perverse incentives, namely the managers' pursuit of excessively risky investments instead of permitting transfer of the value of the debtor's assets to others, is a specie of the problem of "overinvestment." See Skeel, supra, at 1333 n.17 (illustrating the problems of "overinvestment" and "underinvestment"); see also ALAN C. SHAPIRO, MODERN CORPORATE FINANCE 463-64 (1990) (detailing the efforts of the bankrupt Hunt Brothers of Texas, who, after sustaining huge losses stemming from their failed attempt to corner the international silver market, sought to persuade the bankruptcy court over the objection of creditors to permit them to continue to fund an excessively risky offshore oil venture that, while offering the brothers the prospect of potential gain, represented a negative net present value for their creditors once the risks of the venture were taken into account).
260. STEPHEN A. ROSS ET AL., CORPORATE FINANCE 421-22 (4th ed. Irwin 1996). In economic terms, the motivations that the equity holders have to speculate with the firm's assets are known as "perverse incentives." See David A. Skeel, An Evolutionary Theory of Corporate Law and Corporate Bankruptcy, 51 VAND. L. REV. 1325, 1333 (1988) (discussing "perverse incentives"). See generally Stewart C. Myers, Determinants of Corporate Borrowing, 5 J. FIN. ECON. 147 (1977) (discussing managerial behavior). Similarly, the problem created by these perverse incentives, namely the managers' pursuit of excessively risky investments instead of permitting transfer of the value of the debtor's assets to others, is a specie of the problem of "overinvestment." See Skeel, supra, at 1333 n.17 (illustrating the problems of "overinvestment" and "underinvestment"); see also ALAN C. SHAPIRO, MODERN CORPORATE FINANCE 463-64 (1990) (detailing the efforts of the bankrupt Hunt Brothers of Texas, who, after sustaining huge losses stemming from their failed attempt to corner the international silver market, sought to persuade the bankruptcy court over the objection of creditors to permit them to continue to fund an excessively risky offshore oil venture that, while offering the brothers the prospect of potential gain, represented a negative net present value for their creditors once the risks of the venture were taken into account).
261. STEPHEN A. ROSS ET AL., CORPORATE FINANCE 421-22 (4th ed. Irwin 1996). In economic terms, the motivations that the equity holders have to speculate with the firm's assets are known as "perverse incentives." See David A. Skeel, An Evolutionary Theory of Corporate Law and Corporate Bankruptcy, 51 VAND. L. REV. 1325, 1333 (1988) (discussing "perverse incentives"). See generally Stewart C. Myers, Determinants of Corporate Borrowing, 5 J. FIN. ECON. 147 (1977) (discussing managerial behavior). Similarly, the problem created by these perverse incentives, namely the managers' pursuit of excessively risky investments instead of permitting transfer of the value of the debtor's assets to others, is a specie of the problem of "overinvestment." See Skeel, supra, at 1333 n.17 (illustrating the problems of "overinvestment" and "underinvestment"); see also ALAN C. SHAPIRO, MODERN CORPORATE FINANCE 463-64 (1990) (detailing the efforts of the bankrupt Hunt Brothers of Texas, who, after sustaining huge losses stemming from their failed attempt to corner the international silver market, sought to persuade the bankruptcy court over the objection of creditors to permit them to continue to fund an excessively risky offshore oil venture that, while offering the brothers the prospect of potential gain, represented a negative net present value for their creditors once the risks of the venture were taken into account).
262. STEPHEN A. ROSS ET AL., CORPORATE FINANCE 421-22 (4th ed. Irwin 1996). In economic terms, the motivations that the equity holders have to speculate with the firm's assets are known as "perverse incentives." See David A. Skeel, An Evolutionary Theory of Corporate Law and Corporate Bankruptcy, 51 VAND. L. REV. 1325, 1333 (1988) (discussing "perverse incentives"). See generally Stewart C. Myers, Determinants of Corporate Borrowing, 5 J. FIN. ECON. 147 (1977) (discussing managerial behavior). Similarly, the problem created by these perverse incentives, namely the managers' pursuit of excessively risky investments instead of permitting transfer of the value of the debtor's assets to others, is a specie of the problem of "overinvestment." See Skeel, supra, at 1333 n.17 (illustrating the problems of "overinvestment" and "underinvestment"); see also ALAN C. SHAPIRO, MODERN CORPORATE FINANCE 463-64 (1990) (detailing the efforts of the bankrupt Hunt Brothers of Texas, who, after sustaining huge losses stemming from their failed attempt to corner the international silver market, sought to persuade the bankruptcy court over the objection of creditors to permit them to continue to fund an excessively risky offshore oil venture that, while offering the brothers the prospect of potential gain, represented a negative net present value for their creditors once the risks of the venture were taken into account).
263. See Alexander v. Hillman, 296 U.S. 222, 240 (1935) (holding that the debtor's officers "are to be dealt with just as if they were technically trustees for creditors and stockholders"); Railroad Co. v. Howard, 74 U.S. (7 Wall) 392, 409-10 (1868) (stating that "[e]quity regards the property of a corporation as held in trust for the payment of the debts of the corporation" ahead of shareholders); New York Credit Men's Adjustment Bureau, Inc. v. Weiss, 110 N.E.2d 397, 398 (N.Y 1953) (stating that "[i]f the corporation was insolvent at that time it is clear that defendants, as officers and directors thereof, were to be considered as though trustees of the property for the corporate creditor-beneficiaries."); COMMISSION REPORT, supra, note 164, at 254 (recognizing that a corporation "holds its assets as a trust fund charged primarily with the payment of corporate liabilities") (citations and internal quotation marks omitted).
264. See Federal Deposit Ins. Corp. v. Sea Pines Co., 692 F.2d 973, 976-77 (4th Cir. 1982) (observing that "when the corporation becomes insolvent, the fiduciary duty of the directors shifts from the stockholders to the creditors"); Davis v. Woolf, 147 F.2d 629, 633 (4th Cir. 1945) (noting that "[t]he law by the great weight of authority seems to be settled that when a corporation becomes insolvent, or in a failing condition, the officers and directors no longer represent the stockholders, but by the fact of insolvency, become trustees for the creditors") (internal citations omitted); Pay 'N Pak Stores, Inc. v. Court Square Capital, Ltd. (In re PNP Holdings Corp.), 141 F.3d 1178 (9th Cir. 1998) (unpublished opinion) (recognizing a shift in fiduciary duty to creditors once the debtor has become insolvent); Henderson v. Buchanan (In re Western World Funding, Inc.), 52 B.R. 743, 763 (Bankr. D. Nev. 1985) (stating that "[w]hen the corporation is insolvent these [fiduciary] duties [owed by the officers and directors to the corporation and shareholders] run to creditors"); Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613, at *34 n.55 (Del. Ch. Dec. 30, 1991) (concluding that the directors of a solvent debtor "in the vicinity of insolvency" have duties to creditors, not just shareholders); Laura Lin, Shift of Fiduciary Duty Upon Corporate Insolvency: Proper Scope of Directors' Duty to Creditors, 46 VAND. L. REV. 1485, 1512-23 (1993) (reviewing the various court opinions in which corporate directors were held to owe creditors a fiduciary duty); Lynn M. LoPuckki & William C. Whitford, Corporate
265. See Federal Deposit Ins. Corp. v. Sea Pines Co., 692 F.2d 973, 976-77 (4th Cir. 1982) (observing that "when the corporation becomes insolvent, the fiduciary duty of the directors shifts from the stockholders to the creditors"); Davis v. Woolf, 147 F.2d 629, 633 (4th Cir. 1945) (noting that "[t]he law by the great weight of authority seems to be settled that when a corporation becomes insolvent, or in a failing condition, the officers and directors no longer represent the stockholders, but by the fact of insolvency, become trustees for the creditors") (internal citations omitted); Pay 'N Pak Stores, Inc. v. Court Square Capital, Ltd. (In re PNP Holdings Corp.), 141 F.3d 1178 (9th Cir. 1998) (unpublished opinion) (recognizing a shift in fiduciary duty to creditors once the debtor has become insolvent); Henderson v. Buchanan (In re Western World Funding, Inc.), 52 B.R. 743, 763 (Bankr. D. Nev. 1985) (stating that "[w]hen the corporation is insolvent these [fiduciary] duties [owed by the officers and directors to the corporation and shareholders] run to creditors"); Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613, at *34 n.55 (Del. Ch. Dec. 30, 1991) (concluding that the directors of a solvent debtor "in the vicinity of insolvency" have duties to creditors, not just shareholders); Laura Lin, Shift of Fiduciary Duty Upon Corporate Insolvency: Proper Scope of Directors' Duty to Creditors, 46 VAND. L. REV. 1485, 1512-23 (1993) (reviewing the various court opinions in which corporate directors were held to owe creditors a fiduciary duty); Lynn M. LoPuckki & William C. Whitford, Corporate Governance in the Bankruptcy Reorganization of Large, Publicly Held Companies, 141 U. PA. L. REV. 669, 706-711 (1993) (arguing that officers and directors of an insolvent corporation owe fiduciary duties to both the shareholders and the creditors of the corporation).
266. See Manville Corp. v. Equity Sec. Holders Comm. (In re Johns-Manville Corp.), 801 F.2d 60 (2d Cir. 1986) (holding that the equity holders of an insolvent company could hold a meeting to replace the corporate directors absent a finding that the equity holders intended to completely derail the debtor's reorganization); In re J.P. Linahan, Inc., 111 F.2d 590, 592 (2d Cir. 1940) (stating that "[t]he right of the majority of stockholders to be represented by directors of their own choice and thus to control corporate policy is paramount and will not be disturbed unless a clear case of abuse is made out."); see also David A. Skeel, Jr., Rethinking the Line Between Corporate Law and Corporate Bankruptcy, 72 TEX. L. REV. 471, 507 (1994) (discussing the Manville decision).
267. In some cases, of course, equity holders may be ineffective in coordinating and promoting their interests (e.g., because they are too numerous and diffuse). See Jeffrey N. Gordon, Ties that Bond: Dual Class Common Stock and the Problem of Shareholder Choice, 76 CAL. L. REV. 1, 39-55 (1988) (describing problems in coordinating shareholder voting, including voter apathy). See generally MARK J. ROE, STRONG MANAGERS, WEAK OWNERS: THE POLITICAL ROOTS OF AMERICAN CORPORATE FINANCE 1-18 (1994) (outlining the development of the model of detached, fragmented ownership of American firms). In other instances, however, they may quickly coalesce into a cohesive and organized force, and exert a strong influence on management decisions, particularly where the owners and managers of the firm are one and the same.
268. In some cases, of course, equity holders may be ineffective in coordinating and promoting their interests (e.g., because they are too numerous and diffuse). See Jeffrey N. Gordon, Ties that Bond: Dual Class Common Stock and the Problem of Shareholder Choice, 76 CAL. L. REV. 1, 39-55 (1988) (describing problems in coordinating shareholder voting, including voter apathy). See generally MARK J. ROE, STRONG MANAGERS, WEAK OWNERS: THE POLITICAL ROOTS OF AMERICAN CORPORATE FINANCE 1-18 (1994) (outlining the development of the model of detached, fragmented ownership of American firms). In other instances, however, they may quickly coalesce into a cohesive and organized force, and exert a strong influence on management decisions, particularly where the owners and managers of the firm are one and the same.
269. In economic terms, the managers' choice to speculate with the firm's assets generates an "externality," or harmful effect, with respect to the firm's creditors. As Coase has explained: An externality is . . . usually defined as the effect of one person's decision on someone who is not a party to that decision. Thus, if A buys something from B, A's decision to buy affects B, but this effect is not considered to be an 'externality.' However, if A's transaction with B affects C, D, and E, who are not parties to the transaction, because, for example, it results in noise or smoke which impinge on C, D, and E, the effects on C, D, and E are termed 'externalities.' Coase, supra note 43, at 24. Similarly, in economic terms, the difference between what the firm's assets could earn if employed in a more desirable way, and what they will earn if maintained in the less desirable use, is an example of a "rent." See id. at 163-65.
270. See Stuart C. Gilson, Bankruptcy, Boards, Banks, and Blockholders: Evidence on Changes in Corporate Ownership and Control When Firms Default, 27 J. FIN. ECON. 355, 386 (1990) (finding that "[o]n average, only 46% of incumbent directors and 43% of CEO's remain with their firms at the conclusion of the bankruptcy or debt restructuring."); Stuart C. Gilson, Management Turnover and Financial Distress, 25 J. FIN. ECON. 241, 261 (1989) (finding that "in any given year, 52% of sampled firms experience a senior management change if they are either in default on their debt, bankrupt, or privately restructuring their debt to avoid bankruptcy").
271. See Stuart C. Gilson, Bankruptcy, Boards, Banks, and Blockholders: Evidence on Changes in Corporate Ownership and Control When Firms Default, 27 J. FIN. ECON. 355, 386 (1990) (finding that "[o]n average, only 46% of incumbent directors and 43% of CEO's remain with their firms at the conclusion of the bankruptcy or debt restructuring."); Stuart C. Gilson, Management Turnover and Financial Distress, 25 J. FIN. ECON. 241, 261 (1989) (finding that "in any given year, 52% of sampled firms experience a senior management change if they are either in default on their debt, bankrupt, or privately restructuring their debt to avoid bankruptcy").
272. As one commentator has argued, the evidence suggests that: [E]ven prior to insolvency and outside bankruptcy, in many firms the managers' equity investments are large enough and their fiduciary duties are strong enough [to equity holders] to align management and equity interests. After insolvency, and once inside bankruptcy, that incentive not only persists but is enhanced, because when bankruptcy's potential effect on the managers' jobs becomes real, managers' interests in the debtor are pared to their equity investments and abilities to use the reorganization process to prolong their employment or to exact other personal benefits. Adler, supra note 205, at 450 (footnotes omitted).
273. A number of courts have, in fact, addressed generally the problem of risk-shifting and incentives toward increased risk-taking in the bankruptcy context. See Aetna Realty Investors v. Monarch Beach Venture, Ltd. (In re Monarch Beach Venture, Ltd.), 166 B.R. 428, 436 (C.D. Cal. 1993) (discussing the problem of risk-shifting between classes of creditors); In re Consul Restaurant Corp., 146 B.R. 979 (Bankr. D. Minn. 1992) (same); In re EFH Grove Tower Associates, 105 B.R. 310, 314-15 (Bankr. E.D.N.C. 1989) (discussing risk-shifting problem in the context of a debtor's plan that placed too much risk on creditors); Jack Friedman, What Courts Do to Secured Creditors in Chapter 11 Cram-down, 14 CARDOZO L. REV. 1495, 1506-07 (1993) (analyzing risk-shifting between secured creditors and the holders of junior claims and interests); see also Federal Sav. & Loan Ins. Corp. v. D & F Constr., Inc. (In re D & F Constr., Inc.), 865 F.2d 673, 675 (5th Cir. 1989) (stating that a plan that speculated on an improving real estate market was "altogether impermissible speculation from the standpoint of the [mortgagee]").
274. See supra note 210 (discussing this point).
275. See supra note 199 (discussing this point).
276. This is the so-called "bonding role of debt." As explained by one group of commentators: In practice, managers, who enjoy private benefits of control, may be unwilling to shrink or liquidate an unprofitable company. Moreover, the market for corporate control [e.g., supervision by equity holders] may not work well enough to force them to do so. Under these conditions, debt plays an important role in constraining or bonding managers to act in [the equity] holders' interests. Specifically, the managers of a highly leveraged firm face a choice: Reduce slack or go bankrupt. Aghion et al., supra note 183, at 531 (1992) (citing Sanford J. Grossman & Oliver D. Hart, Corporate Financial Structure and Managerial Incentives, in MCCALL, THE ECONOMICS OF INFORMATION AND UNCERTAINTY 107 (U. Chicago Press 1982); Michael C. Jensen, Agency Costs of Free Cash Flow, Corporate Finance and Takeovers, 76 AM. ECON. REV. 323 (1986)) (footnotes omitted).
277. This is the so-called "bonding role of debt." As explained by one group of commentators: In practice, managers, who enjoy private benefits of control, may be unwilling to shrink or liquidate an unprofitable company. Moreover, the market for corporate control [e.g., supervision by equity holders] may not work well enough to force them to do so. Under these conditions, debt plays an important role in constraining or bonding managers to act in [the equity] holders' interests. Specifically, the managers of a highly leveraged firm face a choice: Reduce slack or go bankrupt. Aghion et al., supra note 183, at 531 (1992) (citing Sanford J. Grossman & Oliver D. Hart, Corporate Financial Structure and Managerial Incentives, in MCCALL, THE ECONOMICS OF INFORMATION AND UNCERTAINTY 107 (U. Chicago Press 1982); Michael C. Jensen, Agency Costs of Free Cash Flow, Corporate Finance and Takeovers, 76 AM. ECON. REV. 323 (1986)) (footnotes omitted).
278. For example, a fully secured creditor, with little to gain and much to lose from the debtor's continued retention of his or her collateral, may wish to liquidate immediately in order to prevent the debtor from continuing to control the creditor's collateral, and potentially dissipate its value. In contrast, a trade creditor holding unpaid invoices may prefer that the debtor remain in operation in order to avoid losing a customer, so long as the debtor's reorganization prospects appear reasonable and the creditor continues to sell product to the debtor. In addition, an employee may prefer that the debtor remain in operation at almost any cost to avoid the loss of his or her employment.
279. Of course, where the parties can reach agreement collectively, the debtor may successfully restructure its affairs through a consensual workout, and thus avoid bankruptcy proceedings altogether. Courts have recognized the benefits of workouts. See infra note 301 (discussing the bankruptcy policy of promoting out of courts workouts). At least one court, however, has questioned whether workouts are less costly than bankruptcy proceedings. See Levit v. Ingersoll Rand Fin. Corp. (In re Deprizio Constr. Co.), 874 F.2d 1186, 1198 (7th Cir. 1989) (stating that "[i]t is not clear to us that bankruptcy proceedings are more costly than workouts.").
280. See John C. McCoid, II, Bankruptcy, Preferences, and Efficiency: an Expression of Doubt, 67 VA. L. REV. 249, 260 (1981) (observing that once the debtor becomes insolvent, "payment of one creditor necessarily prejudices others because there are insufficient assets to satisfy all"). See generally Vern Countryman, The Concept of a Voidable Preference in Bankruptcy, 38 VAND. L. REV. 713 (1985) (discussing preference law).
281. See John C. McCoid, II, Bankruptcy, Preferences, and Efficiency: an Expression of Doubt, 67 VA. L. REV. 249, 260 (1981) (observing that once the debtor becomes insolvent, "payment of one creditor necessarily prejudices others because there are insufficient assets to satisfy all"). See generally Vern Countryman, The Concept of a Voidable Preference in Bankruptcy, 38 VAND. L. REV. 713 (1985) (discussing preference law).
282. See supra notes 204-06 and accompanying text.
283. See Theodore Eisenberg, Bankruptcy in the Administrative State, 50 LAW & CONTEMP. PROBS. 3, 33 (1987) (observing that "[b]ankruptcy sends a signal to everyone dealing with a bankrupt debtor: 'Get out now with as much as you can as fast as you can.' "); JACKSON, supra note 28, at 16 n.20 (observing that creditors are most likely to "attempt to collect their claims at roughly the same time" upon learning of a debtor's insolvency); see also Thomas H. Jackson, Of Liquidation, Continuation, and Delay: An Analysis of Bankruptcy Policy and Nonbankruptcy Rules, 60 AM. BANKR. L.J. 399, 402-04 (1986) (explaining the concept of the "common pool" problem, in which individual creditors rush to grab assets of an insolvent debtor, arising "when individual creditors are unconstrained in their collection efforts against a pool of assets that is not large enough to pay each of them in full").
284. See Theodore Eisenberg, Bankruptcy in the Administrative State, 50 LAW & CONTEMP. PROBS. 3, 33 (1987) (observing that "[b]ankruptcy sends a signal to everyone dealing with a bankrupt debtor: 'Get out now with as much as you can as fast as you can.' "); JACKSON, supra note 28, at 16 n.20 (observing that creditors are most likely to "attempt to collect their claims at roughly the same time" upon learning of a debtor's insolvency); see also Thomas H. Jackson, Of Liquidation, Continuation, and Delay: An Analysis of Bankruptcy Policy and Nonbankruptcy Rules, 60 AM. BANKR. L.J. 399, 402-04 (1986) (explaining the concept of the "common pool" problem, in which individual creditors rush to grab assets of an insolvent debtor, arising "when individual creditors are unconstrained in their collection efforts against a pool of assets that is not large enough to pay each of them in full").
285. In economic terms, in the case of an insolvent debtor, a creditor's decision to enforce its collection rights against the debtor may generate an "externality" with respect to the debtor's other creditors. See infra note 211 (discussing the concept of an "externality").
286. As the Supreme Court has observed: [P]roperty that must be sold [through a quick liquidation procedure] is simply worth less. No one would pay as much to own such property as he would pay to own real estate that could be sold at leisure and pursuant to normal marketing techniques. And it is no more realistic to ignore that characteristic of the property (the fact that state foreclosure law permits the mortgagee to sell it at forced sale) than it is to ignore other price-affecting characteristics (such as the fact that state zoning law permits the owner of the neighboring lot to open a gas station). BFP v. Resolution Trust Corp., 511 U.S. 531, 539 (1994); see also id. at 551 n.2 (Souter J., dissenting) (observing that [b]uyers no doubt hope for bargains at foreclosure sales, but an investor with a million dollars in cash in his pocket might be ready to pay "as much" for a desired parcel of property on forced sale, at least if a rival, equally determined millionaire were to appear at the same auction. The principal reason such sales yield low prices is not so much that the properties become momentarily "worth less," . . . (on the contrary, foreclosure-sale purchasers receive a bundle of rights essentially similar to what they get when they buy on the market) or that foreclosing mortgagees are under the compulsion of state law to make no more than the most desultory efforts to encourage higher bidding, but rather that such free-spending millionaires are in short supply, and those who do exist are unlikely to read the fine print which fills the "legal notice" columns of their morning newspaper.); Case vs. Los Angeles Lumber Prods. Co., 308 U.S. 106, 124 (1939) (stating that "[o]ne of the purposes of § 77B was to avoid the consequences to debtors and creditors of foreclosures, liquidations, and forced sales with their drastic deflationary effects").
287. See DOUGLAS G. BAIRD & THOMAS H. JACKSON, CASES, PROBLEMS AND MATERIALS ON BANKRUPTCY 40 (2d ed. 1990) (noting that when secured creditors act in their own self-interest and exercise their rights to the collateral, the going concern value of the debtor may be destroyed); Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 129 (1991) (arguing that "[t]here are situations . . . in which an insolvent corporation is worth saving," and naming Texaco, Manville, and A.H. Robbins as examples); Bradley & Rosenzweig, supra note 1, at 1043 (explaining that, in adopting the Bankruptcy Code in 1978, "Congress believed that assets would be more highly valued if utilized in the industry for which they were designed, rather than scrapped"); Richard V. Butler & Scott M. Gilpatric, A Re-Examination of the Purposes and Goals of Bankruptcy, 2 AM. BANKR. INST. L. REV. 269, 272-73 (1994) (arguing that "if the creditors individually press their claims, the total value of the firm may decline because . . . the firm may have a greater value to its creditors as a going concern than [in] liquidation"); see also supra note 26 (discussing the purpose of Chapter 11 reorganization). On the other hand, of course, efforts to reorganize debtors may do more harm than good in some instances. See Baird & Jackson, supra note 2, at 741 (arguing that "[s]ome firms that cannot meet their obligations are not worth keeping intact as going concerns. These are the manufacturers that sell computers that no one will buy and the restaurants that serve food that no one will eat. The firm's assets are worth more sold piece by piece than as a unit."); id. at 758-59 (arguing that, if the debtor has only one creditor, there may be no reason for the intervention of a bankruptcy procedure); William L. Cary, Liquidation of Corporations in Bankruptcy Reorganization, 60 HARV. L. REV. 173, 194 (1946) (observing that "[r]ehabilitation of the debtor, though it may be possible, is not always the best solution, either for the creditors and security holders or for the economy as a whole").
288. See DOUGLAS G. BAIRD & THOMAS H. JACKSON, CASES, PROBLEMS AND MATERIALS ON BANKRUPTCY 40 (2d ed. 1990) (noting that when secured creditors act in their own self-interest and exercise their rights to the collateral, the going concern value of the debtor may be destroyed); Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 129 (1991) (arguing that "[t]here are situations . . . in which an insolvent corporation is worth saving," and naming Texaco, Manville, and A.H. Robbins as examples); Bradley & Rosenzweig, supra note 1, at 1043 (explaining that, in adopting the Bankruptcy Code in 1978, "Congress believed that assets would be more highly valued if utilized in the industry for which they were designed, rather than scrapped"); Richard V. Butler & Scott M. Gilpatric, A Re-Examination of the Purposes and Goals of Bankruptcy, 2 AM. BANKR. INST. L. REV. 269, 272-73 (1994) (arguing that "if the creditors individually press their claims, the total value of the firm may decline because . . . the firm may have a greater value to its creditors as a going concern than [in] liquidation"); see also supra note 26 (discussing the purpose of Chapter 11 reorganization). On the other hand, of course, efforts to reorganize debtors may do more harm than good in some instances. See Baird & Jackson, supra note 2, at 741 (arguing that "[s]ome firms that cannot meet their obligations are not worth keeping intact as going concerns. These are the manufacturers that sell computers that no one will buy and the restaurants that serve food that no one will eat. The firm's assets are worth more sold piece by piece than as a unit."); id. at 758-59 (arguing that, if the debtor has only one creditor, there may be no reason for the intervention of a bankruptcy procedure); William L. Cary, Liquidation of Corporations in Bankruptcy Reorganization, 60 HARV. L. REV. 173, 194 (1946) (observing that "[r]ehabilitation of the debtor, though it may be possible, is not always the best solution, either for the creditors and security holders or for the economy as a whole").
289. See DOUGLAS G. BAIRD & THOMAS H. JACKSON, CASES, PROBLEMS AND MATERIALS ON BANKRUPTCY 40 (2d ed. 1990) (noting that when secured creditors act in their own self-interest and exercise their rights to the collateral, the going concern value of the debtor may be destroyed); Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 129 (1991) (arguing that "[t]here are situations . . . in which an insolvent corporation is worth saving," and naming Texaco, Manville, and A.H. Robbins as examples); Bradley & Rosenzweig, supra note 1, at 1043 (explaining that, in adopting the Bankruptcy Code in 1978, "Congress believed that assets would be more highly valued if utilized in the industry for which they were designed, rather than scrapped"); Richard V. Butler & Scott M. Gilpatric, A Re-Examination of the Purposes and Goals of Bankruptcy, 2 AM. BANKR. INST. L. REV. 269, 272-73 (1994) (arguing that "if the creditors individually press their claims, the total value of the firm may decline because . . . the firm may have a greater value to its creditors as a going concern than [in] liquidation"); see also supra note 26 (discussing the purpose of Chapter 11 reorganization). On the other hand, of course, efforts to reorganize debtors may do more harm than good in some instances. See Baird & Jackson, supra note 2, at 741 (arguing that "[s]ome firms that cannot meet their obligations are not worth keeping intact as going concerns. These are the manufacturers that sell computers that no one will buy and the restaurants that serve food that no one will eat. The firm's assets are worth more sold piece by piece than as a unit."); id. at 758-59 (arguing that, if the debtor has only one creditor, there may be no reason for the intervention of a bankruptcy procedure); William L. Cary, Liquidation of Corporations in Bankruptcy Reorganization, 60 HARV. L. REV. 173, 194 (1946) (observing that "[r]ehabilitation of the debtor, though it may be possible, is not always the best solution, either for the creditors and security holders or for the economy as a whole").
290. See DOUGLAS G. BAIRD & THOMAS H. JACKSON, CASES, PROBLEMS AND MATERIALS ON BANKRUPTCY 40 (2d ed. 1990) (noting that when secured creditors act in their own self-interest and exercise their rights to the collateral, the going concern value of the debtor may be destroyed); Charles W. Adams, An Economic Justification for Corporate Reorganizations, 20 HOFSTRA L. REV. 117, 129 (1991) (arguing that "[t]here are situations . . . in which an insolvent corporation is worth saving," and naming Texaco, Manville, and A.H. Robbins as examples); Bradley & Rosenzweig, supra note 1, at 1043 (explaining that, in adopting the Bankruptcy Code in 1978, "Congress believed that assets would be more highly valued if utilized in the industry for which they were designed, rather than scrapped"); Richard V. Butler & Scott M. Gilpatric, A Re-Examination of the Purposes and Goals of Bankruptcy, 2 AM. BANKR. INST. L. REV. 269, 272-73 (1994) (arguing that "if the creditors individually press their claims, the total value of the firm may decline because . . . the firm may have a greater value to its creditors as a going concern than [in] liquidation"); see also supra note 26 (discussing the purpose of Chapter 11 reorganization). On the other hand, of course, efforts to reorganize debtors may do more harm than good in some instances. See Baird & Jackson, supra note 2, at 741 (arguing that "[s]ome firms that cannot meet their obligations are not worth keeping intact as going concerns. These are the manufacturers that sell computers that no one will buy and the restaurants that serve food that no one will eat. The firm's assets are worth more sold piece by piece than as a unit."); id. at 758-59 (arguing that, if the debtor has only one creditor, there may be no reason for the intervention of a bankruptcy procedure); William L. Cary, Liquidation of Corporations in Bankruptcy Reorganization, 60 HARV. L. REV. 173, 194 (1946) (observing that "[r]ehabilitation of the debtor, though it may be possible, is not always the best solution, either for the creditors and security holders or for the economy as a whole").
291. See Douglas G. Baird & Thomas H. Jackson, Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy, 51 U. CHI. L. REV. 97, 119 n.69 (1984) (observing that "[w]henever a firm is insolvent, defaults are inevitable, even if the firm has value as a going concern").
292. See Adler, supra note 205, at 444 (stating that "[i]n theory, bankruptcy's collective proceeding is superior to individual creditor actions, because individual creditors have perverse incentives to act in their own interests, even if such action would disserve creditors' collective interest. Thus bankruptcy is beneficial to the extent it protects creditors from their own worse instincts."); Jackson & Scott, supra note 178, at 162 (observing that, in order to implement a bankruptcy system that seeks to maximize a debtor's value, "individual creditors must be restrained from exercising entitlements that they would otherwise enjoy under state law").
293. In economic terms, the ability of individual actors to extract benefits indiscriminately while generating costs for others may be thought of as a "problem of moral hazard." See Jackson, supra note 20, at 1402 (defining the concept of "moral hazard" as one involving "a situation in which individuals systematically - and rationally - underestimate the real costs of engaging in risky activity because the costs are borne by someone else."). See generally A. MITCHELL POLINSKY, AN INTRODUCTION TO LAW AND ECONOMICS 54-55 (1983) (discussing the concept of "moral hazard").
294. See 11 U.S.C. § 362(a) (1994 & Supp. III 1997) (providing for the cessation of debt collection activities upon the commencement of a bankruptcy case); supra note 111 (discussing section 362(a)). In Chapter 11 cases, although the debtor typically remains in control of his or her assets as a "debtor in possession," the Code regulates the debtor in possession's activities. See 11 U.S.C. § 1101(1) (defining concept of "debtor in possession"); id. § 1107 (specifying some of the rights, powers, and duties of a debtor in possession in a Chapter 11 case). Similarly, a trustee may be appointed in a Chapter 11 case to replace the debtor in possession "for cause, including fraud, dishonesty, incompetence, or gross management by current management . . . ." Id. § 1104(a)(1); see also id. § 1106 (specifying the duties of a trustee appointed in a Chapter 11 case). In addition, many of the debtor's decisions in the Chapter 11 context are subject to review by creditors, and approval by the bankruptcy court. See id. § 363 (providing for notice and a hearing on any proposed use, sale or lease of property other than in the ordinary course of business); id. § 364 (providing for notice and a hearing on certain proposals for the incurrence of postpetition debt); id. § 365 (providing for court approval of any decision to assume or reject an executory contract).
295. As indicated above, we have selected as our theoretical point of comparison the general decision-making model of healthy firms outside the bankruptcy context. In our view, this is the most appropriate comparison because it captures normative decision-making in society at large against which to contrast decision-making in bankruptcy settings. In contrast, the decision-making environment surrounding unhealthy, but not yet bankrupt firms engaged in workouts, though intriguing, is not as helpful. Decision-making in the workout context is heavily influenced by existing bankruptcy rules because parties engaged in workouts bargain against a backdrop of what they perceive would happen if the firm were to commence bankruptcy proceedings. See infra note 245 and accompanying text (discussing the concept of "bargaining in the shadow of the law"). Accordingly, reference to the workout environment is not as useful in distilling the logic and virtues of nonbankruptcy decision-making regimes.
296. See supra note 26 and accompanying text (discussing the purposes of Chapter 11).
297. See Baird, supra note 2, at 580-81 (distinguishing between insolvent firms that have no viability as business enterprises and "cannot succeed in the marketplace" because no one wants to do business with them, and insolvent firms that are viable but that simply have too much debt); supra note 225 (discussing this point).
298. See 11 U.S.C. § 1112(b)(1) (providing for the conversion or dismissal of a Chapter 11 case for "cause," including the "continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation").
299. See Brunstad, supra note 37, at 347 (arguing that "[b]ankruptcy is not a world entirely unto itself, nor should it be. Like all substantive laws, it exists in relation to other bodies of legal principles, many of which are of great longevity and importance. It is true, of course, that bankruptcy has a unique mission within the law generally. It is not true that bankruptcy's unique status necessarily justifies wholesale disregard of otherwise applicable legal principles and procedures.").
300. See supra notes 31, 111 & 229 (providing examples of how bankruptcy law alters general commercial rights).
301. Indeed, to the extent that nonbankruptcy law embraces a particular legal right, the Supreme Court has stated the general rule that the nonbankruptcy entitlement should be respected in the bankruptcy context to the greatest extent possible, subject only to modification as mandated by applicable bankruptcy law. See Butner v. United States, 440 U.S. 48, 55 (1979) (stating that "[p]roperty interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving 'a windfall merely by reason of the happenstance of bankruptcy.' ") (quoting Lewis v. Manufacturers Nat'l Bank, 364 U.S. 603, 609 (1961)).
302. See supra notes 19-20, 194-95 and accompanying text (discussing this observation).
303. See Douglas G. Baird, Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren, 54 U. CHI. L. REV. 815, 824-28 (1987) (identifying the problem of "forum shopping" that arises from the creation of a bankruptcy law system that adopts distributional rules and methods that differ from nonbankruptcy rules); JACKSON, supra note 28, at 21-27 (same).
304. See Baird, supra note 2, at 593 (arguing that judges have "no magical ability to make business decisions, let alone to outwit the market"); supra note 176 (discussing this point); cf. In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 854 n.32 (3d Cir. 1994) (observing that judges are not to determine "the equivalent of the medieval just price").
305. See 11 U.S.C. § 506(a) (1994 & Supp. III 1997) (requiring judicial valuation in the determination of secured claims); Consolidated Rock Prods. Co. v. Du Bois, 312 U.S. 510, 525-26 (1941) (requiring a valuation of the debtor's business as a going concern based on capitalization of earnings to determine relative values for purposes of evaluating compliance with absolute priority); supra note 106 (discussing valuations in bankruptcy).
306. See supra notes 111 & 229 (discussing this point).
307. See infra notes 34, 180 and accompanying text (making this point).
308. LaSalle, 119 S. Ct. 1411, 1423-24 (1999).
309. See Brunstad, Sigal & Schorling, supra note 2, at 1411-12.
310. JACKSON, supra note 28, at 17 (citing Robert H. Mnookin & Lewis Kornhauser, Bargaining in the Shadow of the Law, The Case of Divorce, 88 YALE L.J. 950 (1979)).
311. LaSalle, 119 S. Ct. at 1421-22.
312. See supra note 75 and accompanying text (discussing the purpose of the absolute priority rule).
313. Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 121 (1939) (stating that "[w]here . . . necessity exists and the old stockholders make a fresh contribution and receive in return a participation reasonably equivalent to their contribution, no objection can be made").
314. See supra notes 55, 88 and accompanying text (discussing this problem).
315. See supra note 7 (citing these requirements).
316. See infra notes 280-313 and accompanying text (discussing these issues).
317. See supra note 93 and accompanying text (citing this requirement).
318. See Berkeley Fed. Bank & Trust v. Sea Garden Motel & Apartments (In re Sea Garden Motel & Apartments), 195 B.R. 294, 301 (D.N.J. 1996); In re Tuscon Self-Storage, 166 B.R. 892, 899 (B.A.P. 9th Cir. 1994); In re Cipparone, 175 B.R. 643, 645 (Bankr. E.D. Mich. 1994).
319. See In re S.A.B.T.C. Townhouse Ass'n, Inc., 152 B.R. 1005, 1010 (Bankr. M.D. Fla. 1993); see also Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 121 (1939) (requiring a "fresh contribution").
320. See LaSalle, 119 S. Ct. 1411, 1421-22 (1999) (stating that "[c]ausation between the old equity's holdings and subsequent property substantial enough to disqualify a plan would presumably occur on this view of things whenever old equity's later property would come at a price that failed to provide the greatest possible addition to the bankruptcy estate").
321. See supra note 94 and accompanying text (citing this requirement).
322. See In re Snyder, 967 F.2d 1126, 1131 (7th Cir. 1992) (stating that the contribution must not be merely a token); Berkeley Fed. Bank & Trust v. Sea Garden Motel & Apartments (In re Sea Garden Motel & Apartments), 195 B.R. 294, 301 (D.N.J. 1996) (stating that the requirement provides a means to weigh relative benefits). Many courts have applied the substantiality test to measure the adequacy of the old equity holders' contributions in comparison to outstanding indebtedness. See In re Rudy Debruycker Ranch, 84 B.R. 187, 190 (D. Mont. 1988) (taking the strong position that "the capital contribution must certainly result in a 100% pay out of unsecured creditors"); In re Wynnefield Manor Assocs., 163 B.R. 53, 57 (Bankr. E.D. Pa. 1993) (finding that a contribution equivalent to approximately 6.1% of lender's deficiency claim was not substantial); In re Capital Center Equities, 144 B.R. 262, 269-70 (Bankr. E.D. Pa. 1992) (finding that a contribution sufficient to provide a 10% dividend to unsecured creditors was not substantial); cf. Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 317 U.S. 78, 85 (1942) (providing an example of a proposed payment that was unreasonably small to permit the old equity holders to maintain control of the debtor's assets through the reorganization process). In our view, however, the question of whether any portion of the old equity holders' new capital contributions should be paid to creditors forms part of the necessity requirement. See infra notes 288-97 and accompanying text (discussing this aspect of the necessity requirement).
323. See Snyder, 967 F.2d at 1131-32 (declining to define a precise methodology).
324. Of the five elements of the new value doctrine, the substantiality requirement is the only one that was not explicitly mentioned by the Supreme Court in Case v. Los Angeles Lumber Product Co., 308 U.S. 106 (1939).
325. See In re Yasparro, 100 B.R. 91, 97-98 (Bankr. M.D. Fla. 1989) (arguing that the requirement of "reasonable equivalence" measures whether the price paid for the new equity is fair, and, thus, there would seem to be no purpose to the substantiality requirement); Craig, supra note 2, at 814 (arguing that the substantiality requirement is redundant).
326. Another reason for the substantiality requirement is that, without it, old equity holders might be able to take unfair advantage of their access to better information regarding the debtor's prospects than other parties. See Baird & Jackson, supra note 2, at 748 (discussing informational asymmetries between old equity holders and others). Old equity holders with knowledge of the debtor's opportunities might keep any favorable information to themselves, thereby helping to keep down the price for the debtor's new equity shares. By requiring that the value of the new equity contributions must be substantial, the requirement at least assures that the firm will be capitalized reasonably, potentially minimizing the effects of undisclosed private information.
327. See 11 U.S.C. § 1129(a)(11) (1994 & Supp. III 1997) (requiring that "[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan."). In general, a plan is feasible if it offers "a reasonable assurance of success." Kane v. Johns-Manville Corp., 843 F.2d 636, 649 (2d Cir. 1988); see also Travelers Ins. Co. v. Pikes Peak Water Co. (In re Pikes Peak Water Co.), 779 F.2d 1456, 1460 (10th Cir. 1985) (stating that "[t]he purpose of section 1129(a)(11) is to prevent confirmation of visionary schemes") (citations omitted).
328. See Teamsters Nat'l Freight Indus. Negotiating Comm. v. United States Truck Co. (In re U.S. Truck Co.), 800 F.2d 581, 589 (6th Cir. 1986) (listing these factors); Clarkson v. Cooke Sales & Serv. Co. (In re Clarkson), 767 F.2d 417, 420 (8th Cir. 1985) (same); In re Mulberry Phosphates, Inc., 149 B.R. 702, 709 (Bankr. M.D. Fla. 1993) (same).
329. Some courts, however, are not as strict in their application of section 1129(a)(11). See Berkeley Federal Bank & Trust v. Sea Garden Motel & Apartments (In re Sea Garden Motel & Apartments), 195 B.R. 294, 305 (D.N.J. 1996) (stating that "it is clear that there is a relatively low threshold of proof necessary to satisfy the feasibility requirement").
330. As the Supreme Court has explained: Findings as to the earning capacity of an enterprise are essential to a determination of the feasibility as well as the fairness of a plan of reorganization. Whether or not the earnings may reasonably be expected to meet the interest and dividend requirements of the new securities is a sine qua non to a determination of the integrity and practicability of the new capital structure. It is also essential for satisfaction of the absolute priority rule of [Los Angeles Lumber]. Unless meticulous regard for earnings capacity be had, indefensible participation of junior securities in plans of reorganization may result. Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 525 (1941).
331. See LaSalle, 119 S. Ct. 1411, 1423 (1999) (reciting a preference for market evaluations).
332. See Brunstad, Sigal & Schorling, supra note 2, at 1420 (making this suggestion).
333. For example, the debtor may compete with another firm in the manufacture of steel, but the other firm may also make aluminum products. To the extent that the competitor's nonrelevant line of business requires different capital needs, this difference should be reflected in the comparison.
334. See supra note 95 and accompanying text (citing this requirement).
335. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 204-05 (1988) (holding that the relevant contribution must be tangible and may not be merely a promise of future services).
336. See Craig, supra note 2, at 815-16 (arguing that "sweat equity" should constitute money's worth). Compare In re Snyder, 967 F.2d 1126, 1131 (7th Cir. 1992) (holding that the release of indebtedness held by an equity holder does not qualify as money or money's worth), with In re Future Energy Corp., 83 B.R. 470, 498-99 (Bankr. S.D. Ohio 1988) (holding that the release of claims held by an equity holder does constitute money's worth); compare In re Potter Material Service, Inc., 781 F.2d 99, 102-03 (7th Cir. 1986) (finding that the provision of a guaranty, in addition to cash, was a valuable contribution) and In re Sawmill Hydraulics, Inc., 72 B.R. 454, 457 (Bankr. C.D. Cal. 1987), with Kham & Nate's Shoes v. First Bank, 908 F.2d 1351, 1362-63 (7th Cir. 1990) (holding that the equity holders' personal guarantees to support bank loans did not constitute money or money's worth).
337. LaSalle, 119 S. Ct. 1411, 1422 (1999).
338. See Ahlers, 485 U.S. at 204-05.
339. See id.
340. See supra note 252 (discussing the requirement that the contribution must be new).
341. To potentially qualify, the indebtedness would have to be real. That is, it could not be a disguised equity interest or an obligation avoidable as a fraudulent conveyance. Most courts have rejected cancellation of indebtedness as sufficiently tangible to constitute money's worth. See Snyder, 967 F.2d at 1131 (release of parent's lien on farm equipment did not constitute money's worth); In re Sun Valley Newspapers, Inc., 171 B.R. 71, 77-78 (Bankr. 9th Cir. 1994); In re Beaver Office Products, 185 B.R. 537, 542 (Bankr. N.D. Ohio 1995).
342. See supra notes 256-68 and accompanying text (discussing the substantiality requirement).
343. See In re Potter Material Service, Inc., 781 F.2d 99, 102-03 (7th Cir. 1986) (finding that the provision of a guaranty, in addition to cash, was a valuable contribution); In re Jartran, Inc., 44 B.R. 331, 367 (Bankr. N.D. Ill. 1984) (finding payment of cash in addition to guaranty of the debtor's plan obligations was valuable); In re Sawmill Hydraulics, Inc., 72 B.R. 454, 457 (Bankr. C.D. Ill. 1987) (finding guaranty to be valuable).
344. In addition, in order for a guaranty to qualify as money's worth, it would have to be clear that the old equity holder had the ability to perform under the guaranty. If not, the benefit would be illusory in terms of its contribution to the firm's capital structure. Following Ahlers, courts have taken a dim view of guaranties as sufficient to constitute money's worth. See Kham & Nate's Shoes v. First Bank, 908 F.2d 1351, 1362-63 (7th Cir. 1990) (concluding that the equity holders' personal guarantees to support bank loans did not constitute money or money's worth); In re Sovereign Group, 142 B.R. 702, 709 (E.D. Pa. 1992) (determining that a "cash flow guaranty" was insufficient).
345. See supra note 96 and accompanying text (citing this requirement).
346. See In re Wynnefield Manor Assocs., L.P., 163 B.R. 53, 58-59 (Bankr. E.D. Pa. 1994) (discussing the necessity requirement); In re Batten, 141 B.R. 899, 908 (Bankr. W.D. La. 1992) (same); In re Tallahassee Assocs., 132 B.R. 712, 719 (Bankr. W.D. Pa. 1991) (same); cf. Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 317 U.S. 78, 85 (1942) (concluding that de minimis infusions would be insufficient to sustain the proposed reorganization).
347. See Craig, supra note 2, at 813 (arguing that under the necessity requirement the debtor should only have to demonstrate that "the reorganization needs additional capital, not that the owner affords the last resort for new capital."). Compare In re Tuscon Self-Storage, Inc., 166 B.R. 892, 899 (B.A.P. 9th Cir. 1994) (concluding that the proposed use of cash to pay creditors was not "necessary"), and In re HRC Joint Venture, 187 B.R. 202, 210 (Bankr. S.D. Ohio 1995) (same), and Sovereign Group, 142 B.R. at 708 (same), with In re Mission Heights Investors Ltd. Partnership, 202 B.R. 131, 137 (Bankr. D. Ariz. 1996) and In re Miami Center Assocs., Ltd., 144 B.R. 937, 942 (Bankr. S.D. Fla. 1992) (concluding that a contribution is not necessary if it simply results in an increase in the equity value of the enterprise for the benefit of equity holders).
348. Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 121 n.15 (1939).
349. LaSalle, 119 S. Ct. 1411, 1422 n.26 (1999).
350. See Consolidated Rock Prods. Co. v. Du Bois, 312 U.S. 510, 529 (1941) (stating this rule). The determination of this issue may require a valuation of the debtor's assets. See supra notes 30, 97, 240 & 265 (discussing valuations to determine relative entitlements). Of course, some creditors' debts may not have been cancelled (i.e., the secured claims of the debtor's secured creditors). Thus, the creation of equity value would not properly be attributable to them, but only to those creditors whose debts were discharged in order to reduce the firm's debt burden.
351. As explained by the Supreme Court: [T]his [absolute priority rule] does not require the impossible and make it necessary always to pay unsecured creditors in cash before stockholders may retain any interest whatever in the reorganized company. By way of illustration, . . . such creditors can be protected 'by the issuance, on equitable terms, of income bonds or preferred stock.' . . . And we now add that, when necessary, they may be protected through other arrangements which distinctly recognize their equitable rights to be preferred to stockholders against the full value of all property belonging to the debtor corporation, and afford each of them fair opportunity, measured by the existing circumstances, to avail himself of this right. Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445, 454-55 (1926) (citations omitted).
352. As the Supreme Court has explained: The absolute priority rule does not mean that bondholders cannot be given inferior grades of securities, or even securities of the same grade as are received by junior interests. Requirements of feasibility of reorganization plans frequently necessitate it in the interests of simpler and more conservative capital structures. And standards of fairness permit it. . . . [But] it is plain that while creditors may be given inferior grades of securities, their 'superior rights' must be recognized. Clearly, those prior rights are not recognized, in cases where stockholders are participating in the plan, if creditors are given only a face amount of inferior securities equal to the face amount of their claims. They must receive, in addition, compensation for the senior rights which they are to surrender. If they receive less than that full compensatory treatment, some of their property rights will be appropriated for the benefit of stockholders without compensation. That is not permissible. The plan then comes within judicial denunciation because it does not recognize the creditors' 'equitable right to be preferred to stockholders against the full value of all property belonging to the debtor corporation.' Consolidated Rock Prods. Co., 312 U.S. at 528-29 (citations omitted); see also Kansas City Terminal Ry. Co., 271 U.S. at 455-56 (same).
353. See Consolidated Rock Prods. Co., 312 U.S. at 528-29 (basing its analysis on the absolute priority rule).
354. See id. Along similar lines, courts have rejected new value plans as failing to satisfy the "necessity" requirement where the new value contribution would serve essentially to benefit only the new equity owners. See In re One Times Square Assocs., 159 B.R. 695, 708 (Bankr. S.D.N.Y. 1993) (rejecting plan), aff'd, 165 B.R. 773 (S.D.N.Y. 1994); In re Miami Center Assocs., Ltd., 144 B.R. 937, 942 (Bankr. S.D. Fla. 1992) (same).
355. Among other things, any vesting of discretion in the debtor to simply cancel valid debts at will would conflict with basic normative principles governing the relationships between debtors and creditors, and would adversely affect credit markets generally. See Jackson, supra note 20, at 1427 (observing that "[b]ecause of the nature of credit, free access to discharge would be disastrous for a credit-based economy."); supra notes 84, 140 and accompanying text (discussing the normative expectations of creditors).
356. See supra note 75 (reciting the purpose of the absolute priority rule).
357. See LaSalle, 119 S. Ct. 1411, 1423-24 (1999).
358. Id. at 1424.
359. See Klee, supra note 2, at 244 (arguing that "[a]t the very least, to maintain the balance of relative rights, chapter 11 creditors who argue that the proposed capital contribution is too low should have the opportunity to match or exceed [old equity's] pending offer").
360. See Markell, supra note 2, at 123-24 (arguing in favor of competing plans).
361. As explained elsewhere: The problem associated with a debtor's exclusive right to propose a plan under section 1121 is that this right prevents other parties from proposing alternative plans that may place a different value on the "equity" of the reorganized entity. For example, a debtor may propose a new value plan that capitalizes the debtor at a relatively modest level because that is all that preexisting equity holders can contribute. In contrast, a group of creditors might propose a plan that capitalizes the debtor in a more healthy amount by permitting contributions from creditors and third parties. Alternatively, a group of creditors might propose to 'purchase' the 'equity' of the debtor by offering to pay all other creditors in full in order to gain control of the debtor's assets. While the debtor's plan might pass muster under the minimal requirements of section 1129, the creditors' plan might be preferable because it might increase the reorganized debtor's chances of success or, alternatively, might provide a better return for creditors. Brunstad, Sigal & Schorling, supra note 2, at 1413.
362. As explained elsewhere: Similarly, as far as plan negotiations are concerned, opening up the process may effectively shift bargaining leverage away from the debtor in ways that may help ensure the appropriateness of any 'new value' contribution. If creditors believe that a debtor's proposed new value plan is inadequate, they may formulate one of their own. Regardless, the mere ability of a group of creditors to propose an alternative plan might cause the debtor and its equity holders to increase the level of their new value contribution, both to enhance viability and provide a better return. In essence, the ability of creditors to propose their own plan may help ensure that a debtor's proposed new value scheme is both necessary (because others will not propose to pay more for the debtor's equity) and reasonably equivalent to the value of their interest in the new entity, thus ensuring that preexisting equity holders do not recover anything on account of their preexisting equity interests if creditors are not to be paid in full. Id. at 1413; see also Markell, supra note 2, at 108-11 (arguing that permitting competitive bidding in which the old equity holders may participate will tend to enhance the final price for the old equity's shares).
363. See supra notes 65-68 and accompanying text (discussing these procedures).
364. See supra notes 294-97 and accompanying text (discussing the desirability of competing plans).
365. See In re Mercury Fin. Co., 224 B.R. 380, 381 (Bankr. N.D. Ill. 1998) (considering a "prepackaged" plan that had been negotiated before the debtor filed bankruptcy).
366. See generally Texas Commerce Bank, N.A. v. Licht (In re Pengo Indus., Inc.), 962 F.2d 543, 547 (5th Cir. 1992) (discussing policy of facilitating workouts to avoid the uncertainty and costs of bankruptcy proceedings); Official Comm. of Unsecured Creditors v. Valley Fidelity Bank & Trust Co. (In re Chateaugay Corp.), 961 F.2d 378, 381, 382 (2d Cir. 1992) (same); In re Colonial Ford, Inc., 24 B.R. 1014, 1015-17 (Bankr. D. Utah 1982) (same).
367. 11 U.S.C. § 1129(c) (1994 & Supp. III 1997). See In re Treasure Bay Corp., 212 B.R. 520, 548 (Bankr. S.D. Miss. 1997) (applying section 1129(c)); In re River Village Assocs., 181 B.R. 795, 806 (E.D. Pa. 1995) (same).
368. See generally Unofficial Committee of Zero Coupon Noteholders v. Grand Union Co., 179 B.R. 56, 59 (D. Del. 1995) (noting the bankruptcy court's "authority to control proceedings before him"); In re Colorado-Ute Elec. Ass'n, Inc., 120 B.R. 164, 177 (Bankr. D. Colo. 1990) (stating that "[t]he court is perfectly able to establish effective methods to deal with competing disclosure statements, plans and solicitations of acceptances").
369. See 680 Fifth Ave. Assocs. v. EGI Services Inc. (In re 680 Fifth Ave. Assocs.), 209 B.R. 314, 317 (Bankr. S.D.N.Y. 1997) (discussing procedures to handle competing plans).
370. Cf. Official Unsecured Creditors' Comm. v. Michaels (In re Marin Motor Oil, Inc.), 689 F.2d 445, 453 (3d Cir. 1982) (finding in an analogous context that there is little support for the fear that creditors will participate en masse in every issue in a case if permitted to do so).
371. See supra note 97 and accompanying text (citing this requirement).
372. See In re Yasparro, 100 B.R. 91, 97-98 (Bankr. M.D. Fla. 1989); Craig, supra note 2, at 814.
373. See supra notes 256-68 and accompanying text (discussing the substantiality requirement).
374. See supra notes 280-305 and accompanying text (discussing the necessity test).
375. This problem might be solved, of course, if the creditors were given an appropriate share of any future appreciation in the center's market value.
376. Consolidated Rock Prods. Co. v. Du Bois, 312 U.S. 510, 526 (1941). See also Teamsters Nat'l Freight Indus. Negotiating Comm. v. U.S. Truck Co. (In re U.S. Truck Co.), 800 F.2d 581, 588 (6th Cir. 1986); In re Potter Material Serv., Inc., 781 F.2d 99, 103-04 (7th Cir. 1986) (reviewing a capitalized future earnings approach); In re Lattick Typografic, 103 B.R. 32, 35-36 (Bankr. D. Conn. 1989) (applying a discounted future earnings approach); Berkeley Fed. Bank & Trust v. Sea Garden Motel & Apartments (In re Sea Garden Motel & Apartments), 195 B.R. 294, 303 (D.N.J. 1996) (stating that the valuation must be based on the going concern value of the enterprise).
377. Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445, 455 (1926) (emphasis added); see Consolidated Rock Prods. Co., 312 U.S. at 525-29 (stating that creditors are entitled to the full value of all property belonging to a debtor corporation ahead of equity holders, and must receive full compensation for any valuable rights that they surrender); cf. Dewsnup v. Timm, 502 U.S. 410, 417 (1992). In Dewsnup, the Supreme Court stated, in the context of a debtor's attempt to extract the value of collateral above a judicially determined price in a Chapter 7 case: The practical effect of petitioner's argument is to freeze the creditor's secured interest at the judicially determined valuation. By this approach, the creditor would lose the benefit of any increase in the value of the property by the time of the foreclosure sale. The increase would accrue to the benefit of the debtor, a result some of the parties describe as a windfall. We think, however, that the creditor's lien stays with the real property until the foreclosure. That is what was bargained for by the mortgagor and the mortgagee. . . . Any increase over the judicially determined valuation during bankruptcy rightfully accrues to the benefit of the creditor and not to the benefit of other unsecured creditors whose claims have been allowed and who had nothing to do with the mortgagor-mortgagee bargain. Id.
378. See generally Baird & Jackson, supra note 2, at 749 (pointing out that negotiating with parties seeking to extract benefits to which they are not entitled may simply encourage like behavior in the future, and arguing that "[a] strategy of never negotiating with terrorists may be the most effective"). Similarly, permitting equity holders to adjust the rights of creditors simply to effect a wealth transfer is obviously inconsistent with the Chapter 11 policy of maximizing the creditors' return. Moreover, it is not necessary to salvage viable businesses. Accordingly, the practice should form no part of the Chapter 11 process.
379. See supra notes 7, 78-84 and accompanying text (discussing the origins and requirements of the new value doctrine).
380. 11 U.S.C. § 1123(a)(5)(J) (1994 & Supp. III 1997) (emphasis added).
381. See supra note 60 (defining the term "interest"). Moreover, section 1123(a)(5)(J) imposes no limitation on who may acquire a reorganized debtor's new equity shares. In other words, if the requisite number of creditors in each class vote in favor of a plan, or each nonconsenting class will be paid or provided for in full, it is perfectly legitimate for the plan to transfer new equity interests to old equity holders on account of their old equity interests.
382. See 11 U.S.C. § 1129(b)(2)(B)(ii); see also supra note 74 (quoting the text of section 1129(b)(2), including the absolute priority rule).
383. See id.
384. See Sandy Ridge Dev. Corp. v. Louisiana Nat'l Bank, 881 F.2d 1346, 1352 (5th Cir. 1989) (finding the requirements of section 1129(b)(2) to be nonexclusive); Federal Sav. & Loan Ins. Corp. v. D & F Constr., Inc. (In re D & F Constr., Inc.), 865 E2d 673, 675 (5th Cir. 1989) (same); Aetna Realty Investors v. Monarch Beach Venture, Ltd. (In re Monarch Beach Venture, Ltd.), 166 B.R. 428, 434 (C.D. Cal. 1993) (same); see also Austin, supra note 2, at 206-07 (observing that the nonexclusive nature of the requirements of section 1129(b)(2) may support inclusion of a new value doctrine as part of the fair and equitable standard).
385. See Aetna Realty Investors v. Monarch Beach Venture, Ltd. (In re Monarch Beach Venture, Ltd.), 166 B.R. 428, 434-36 (C.D. Cal. 1993) (discussing the problem of risk-shifting between classes of creditors); In re Consul Restaurant Corp., 146 B.R. 979, 989-90 (Bankr. D. Minn. 1992) (same); In re EFH Grove Tower Associates, 105 B.R. 310, 314-15 (Bankr. E.D.N.C. 1989) (discussing risk shifting problem in the context of a debtor's plan that placed too much risk on creditors); Friedman, supra note 214, at 1506-07 (analyzing risk-shifting between secured creditors and the holders of junior claims and interests). Significantly, courts have found that, under section 1129(b), the absolute priority rule applies with respect to both secured and unsecured claims. See Monarch Beach Ventures, 166 B.R. at 434-36 (citing cases); see also Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 116 (1993) (reciting the absolute priority rule as preserving priorities "[f]irst, of secured, and then of unsecured, creditors").
386. For example, the legislative history includes the following statement: Although many of the factors interpreting 'fair and equitable' are specified in paragraph (2), others, which were explicated in the description of section 1129(b) in the House report, were omitted from the House amendment to avoid statutory complexity and because they would undoubtedly be found by a court to be fundamental to 'fair and equitable' treatment of a dissenting class. For example, a dissenting class should be assured that no senior class receives more than 100 percent of the amount of its claims. While the requirement was explicitly included in the House bill, the deletion is intended to be one of style and not one of substance. 124 CONG. REC. H11,104 (daily ed. Sept. 28, 1978); 124 CONG. REC. S17,420 (daily ed. Oct. 6, 1978).
387. For example, the legislative history includes the following statement: Although many of the factors interpreting 'fair and equitable' are specified in paragraph (2), others, which were explicated in the description of section 1129(b) in the House report, were omitted from the House amendment to avoid statutory complexity and because they would undoubtedly be found by a court to be fundamental to 'fair and equitable' treatment of a dissenting class. For example, a dissenting class should be assured that no senior class receives more than 100 percent of the amount of its claims. While the requirement was explicitly included in the House bill, the deletion is intended to be one of style and not one of substance. 124 CONG. REC. H11,104 (daily ed. Sept. 28, 1978); 124 CONG. REC. S17,420 (daily ed. Oct. 6, 1978).
388. See Markell, supra note 2, at 114 (arguing in favor of a simplified rule governing old equity holder participation as part of the fair and equitable standard).
389. See In re Marston Enters., 13 B.R. 514, 517-18 (Bankr. E.D.N.Y. 1981) (stating that "[t]here is no statutory prohibition against original shareholders making a substantial necessary capital contribution in consideration for which they received shares of stock in the reorganized corporation").