Race to the Finish
Chapter 11, Dodd-Frank and How Companies
and Financial Institutions Reorganize
feature
By Jacob Barron, CICP
One of the main reasons given for the seemingly endless decline in Chapter 11 cases, which tend to fall each month
by at least 20% from the filing totals of the same period in the prior year, is that Chapter 11 is simply too expensive
for the majority of businesses seeking reorganization. These would be the middle-market companies and small
businesses, for which the process was ostensibly designed, but from which Chapter 11’s administrative requirements, uncertainty and other factors would drain too much value for the process to be worth it. If a company is on
the ropes, financially, it makes more sense to the owners to simply liquidate, sell the business or close their doors
than to take what little money they have, tie it up, lock it in a safe, and then push that safe over the cliff that Chapter
11 seems to be.
For many reasons, this isn’t really the debtors’ collective fault. Chapter 11 was designed to be expensive, in some
ways, as a kind of pay-to-play procedure for reorganization. If a company hoped to emerge from Chapter 11 to
continue operating for the benefit of the business’ owners and shareholders, it had to put up enough money to make
sure that the majority of its creditors received at least something, including unsecured creditors. It was never built
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