Publications Corner Celebrating Our Members ' Latest Contributions to the Field
To Protect Their Interests: The Invention and Exploitation of Corporate Bankruptcy by Stephen J. Lubben
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Publications Corner Celebrating Our Members ' Latest Contributions to the Field
To Protect Their Interests: The Invention and Exploitation of Corporate Bankruptcy by Stephen J. Lubben
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How did large scale corporate restructuring( or bankruptcy) develop the way it did? Given the influence of America’ s chapter 11, studying its origins can provide important information about the development of reorganization worldwide.
In the United States, the standard answer to the opening question is that reorganization developed in the 1890s, as J. P. Morgan sought to protect the foreign bond investors he had previously convinced to lend to American railroads. That story fit well with the dominate law and economics trend of late twentieth century legal 50 scholarship, inasmuch as it showed Morgan acting with the correct incentives, with little governmental encouragement.
But was it historically accurate? In my new book – To Protect Their Interests: The Invention and Exploitation of Corporate Bankruptcy, published earlier this year with Columbia University Press – I argue the answer is“ no.” I place the start of large-scale corporate reorganization about a decade earlier, and I am far less sanguine about the incentives of the founders.
That is, rather than start with the“ Morganizations” of the 1890s, I look to the work of Jay Gould in the 1880s. Particularly, as explained in early Chapters, I view the Texas and Pacific’ s
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Harvey Washington Wiley Chair in Corporate Governance, Seton Hall University School of Law, Newark, New Jersey
1885 receivership as a moment when several already extant techniques came together to be used in the successful reorganization of a large railroad. This is less a genesis moment than simply a clear point of unity, in a context with economic significance. Jay Gould did not invent any new reorganization tools in 1885, he simply used existing tools in a coherent way in the case of a large railroad( the 1,500 + mile Texas and Pacific) for the first time.
I identify this case as the first truly big reorganization, and note that the primary goal was to protect Jay Gould’ s control of the railroad. I see a direct line between Gould and today’ s private equity sponsors.
The book also addresses the first big reorganization overseen by J. P. Morgan, in the 1890s, and the first statutory reorganization, the epic section 77 case of the Missouri Pacific, which ran from 1933 to 1956. The case studies conclude with the last big case under the Chandler Act: the failed 1975 reorganization of W. T. Grant. The remaining chapters cover the enactment of the 1978 Code, and more recent events like RSAs and third-party releases.
I also use this book to push against another Reagan Age chestnut, the confidence that regulatory systems work better when they solely rely on markets, rather than government, to address concerns. The current American Bankruptcy Code, enacted in 1978, is steeped in this mentality. And certainly, the New Deal corporate bankruptcy system that it replaced sometimes did not work very well. But did the Bankruptcy Code, and its chapter 11, go too
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