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- Title
Bankruptcy Law and Inefficient Entitlements.
- Authors
Haviv-Segal, Irit
- Abstract
The justification for bankruptcy law remains an open question. The literature tends to emphasize the conflict and the inability to compromise between the different normative outlooks of the insolvency law system. A deeper reflection on the existing theories of bankruptcy law reveals, however, that all theories agree that the enforcement of contractual bankruptcy arrangements maximizes aggregate efficiency. Social theories calling for increased levels of coercion and redistribution do not dispute the efficiency of enforcing prior entitlements, but rather, place an overriding premium on normative considerations of distributive justice and rehabilitation values. This Article presents a new theory of bankruptcy law that challenges this shared starting point. To be sure, the Article supports the economic analysis' focus on efficiency considerations-it calls for bankruptcy law rules that would maximize the aggregate value of the debtor's assets to his or her creditors and equity holders. Yet the analysis shows that under particular circumstances, efficiency-based considerations can support the coercive avoidance of existing entitlements, a result ordinarily advocated by the social theories. Accordingly, I will argue that the role of bankruptcy law is to provide the procedural and substantive framework for severing the debtor's economic resources from his or her inefficient liabilities. The analysis proceeds to show how the new theoretical framework explains many of the positive legal arrangements of bankruptcy law. First, it explains why courts prefer reorganization plans over liquidation proceedings. Second, it explains why the law affords special priority to post-petition creditors. Finally, it explains the arrangements regarding executory contracts.
- Publication
Berkeley Business Law Journal, 2005, Vol 2, Issue 2, p355
- ISSN
1548-7067
- Publication type
Article