Corporate Bankruptcy Hybridity

Abstract

This Article contends that corporate bankruptcy is a hybrid form of law, best understood as a public-private partnership. Using the analytical tools of administrative law and privatization scholarship, I interrogate the common, but erroneous, assumption that corporate bankruptcy is best understood as a species of private law - an assumption that has dramatically limited the field methodologically, ideologically, and doctrinally. Having established the public-private partnership concept, the Article next explores disparate features of modern Chapter 11 that, taken together, distort the system's balance, particularly in larger cases. In addition to extensive control of private lenders that already has been well documented, the discussion here includes subtler factors, such as the doctrine of equitable mootness, permissive venue laws, the disabling of the threat of trustee appointment, and the erosion of debtor-in-possession responsibilities through derivative standing. The final task of the Article is to offer ideas for system improvement inspired by the public-private partnership model. First, I argue that all repeat players that shape the system, including private parties, must attend to procedural justice concerns. In a hybrid system, maintaining legitimacy cannot be the sole obligation of government actors. Second, I propose a non-profit Sunlight Fund. It could finance particular acts and causes of actions in a bankruptcy that are important to furthering public objectives yet potentially antagonistic to the interests of deep-pocketed private parties. Perhaps the biggest advance, however, would come from rethinking who gets a seat at the table in shaping the future of the field. In legal academics, those who have redistricted the corporate bankruptcy field to include only private law concerns mainly have been white men, most of whom work within a subset of law and economics. Particularly given the range of people and communities affected by the bankruptcy system, and the research on matters such as cognitive bias, diversifying the voices and experiences of the contributors is essential.

Keywords: bankruptcy, public-private partnership, chapter 11, procedural justice, sunlight fund, venue, lending, appellate process, corporate reorganization, diversity,

JEL Classification: G33, K22, K23, H44