The Rise of Secured Credit

This chapter explores the way in which the shifts in the fields of finance and non-financial corporates discussed in Chapters 3 and 4 have led to changes in US secured transactions law. It examines the way in which these changes have, in turn, shifted bargaining power towards secured creditors when a debtor attempts to reorganize its debt and equity finance. However, the argument is made that this gives rise to different issues from the traditional concern for secured creditor liquidation bias when it is set in the wider organizational and institutional environment which the book has begun to examine. Turning to England, the chapter explores how the English courts have generally supported the allocation of control rights in distress to senior financial creditors. It reveals why this has, once again, made English corporate reorganization law particularly well adapted to the demands of the past decade.

Introduction

Chapter 1 briefly maps the traditional contours of the debate between economically orientated and progressively orientated scholars of US corporate reorganization law. Specifically, it identifies a group of concepts which have come to embody the disagreement between these scholars. It introduces the argument in the book that these concepts are less salient when certain adaptations of corporate reorganization law are examined, and that policy and analytical missteps arise if they continue to be adopted uncritically. It further introduces the comparative aspect of the book, which examines why different issues have arisen for scholars, practitioners, judges, and the legislature examining English corporate reorganization law. Moreover, it identifies what purpose the comparative approach serves for the work as a whole.

The Rise of Leverage

This chapter explores the first of the changes in logic and practice in the fields of finance and non-financial corporates with which the book is concerned: the rise of the leveraged capital structure. It explores the implications of the leveraged capital structure for the ways in which corporate reorganization law is mobilized and adapted by the participants in the corporate reorganization process. It argues that the first step in analysing these new adaptations is to focus on the concepts which are used to describe them. It further argues that when this is done certain implications are revealed for current debates about the content and reform of US corporate reorganization law. It argues that England has had fewer problems in framing appropriate concepts for analysing the new adaptations which are under examination in the chapter. However, it hints at potential challenges for England for the future, developed later in the book.

The Approach in the Book and Implications for Reform

First, Chapter 10 applies the approach developed in the book to the current reform debate in the US and England. It suggests that the US reform debate has persisted in measuring the extent to which new adaptations of Chapter 11 have moved it from the way in which it was originally conceived, rather than creating new conceptual frameworks for analysing new adaptations and the case for reform. The chapter shows how this can lead to policy missteps, and the reasons for using the approach developed in the book instead. Secondly, Chapter 10 explores the ways in which the US has sought to export the original policy goals of Chapter 11, and the effect which this has had on the way in which the English reform debate is framed. Once again, it shows how a bottom-up approach, rooted in the arguments in the book, provides a more effective frame for debating the case for reform.

Looking to the Future

It is an organizing principle of the book that modern corporate reorganization law responds to different patterns of fact in diverse and complex ways, and this chapter explores other types of corporate reorganization case beyond financial restructuring. It argues that the analysis of these types of case may depend more fundamentally on the lens through which they are viewed. Furthermore, it suggests that there are reasons to suspect that there may be an increase in some of these other types of case over the next decade. This provides the framework in which to investigate the claim in the book that English scholars, practitioners, judges, and the legislature may face challenges in connecting concepts which are well adapted to a reorganization of loan, bond, and equity finance arrangements to new adaptations of corporate reorganization law.

Initial Conditions and Emergence of Corporate Reorganization in the United States and England

This chapter is a scene-setting exercise, offering a brief and highly selective review of almost one hundred years of corporate reorganization in the US and England. It seeks to provide some explanation for the very different ways in which corporate reorganization developed in each jurisdiction. Overall, its purpose is to help to sketch out the conditions which prevailed when the account in the book really begins in the 1970s, and how they offer significant explanatory power for the way in which corporate reorganization law and practice emerges in each jurisdiction. Specifically, the chapter investigates the relatively stable corporate reorganization law and practice which prevailed in each jurisdiction for much of the twentieth century, and, in each case, the institutional logics, practices, and identities which gave rise to it.

The Fall of the Gentleman Banker

This chapter focuses on shifts in the identities of the financial creditors who participate in the reorganization of a complex, leveraged capital structure. It argues that the changing identities of these participants undermine some of the assumptions made in Chapter 11 about the ways in which reputational concern will interact with corporate reorganization law to motivate bargaining. Once again, the account in the chapter reveals why the comparatively recent development of corporate reorganization law to deleverage a complex capital structure in England means that the same assumptions are not made about the identities of the participants in the process, the role of reputation, or the bargaining environment in general.

The Fall of the Lifetime Manager

Chapter 6 explores the significance of shifts in the identities of debtor firms, and of the individuals who manage them, for the concept of debtor control rights in Chapter 11. The argument is made that these changes in identities suggest reasons to question the concept of allocation of control rights to the debtor as a means of incentivizing early filing. However, the argument is made that the concept of debtor control rights is important in a different way when the purpose of the case is to deleverage a complex, leveraged capital structure. When the chapter turns to examine England, it reveals that participants in this type of reorganization case have mobilized corporate reorganization law in ways which take account of the new demands of the debtor control concept, but without bringing on board inherited ideas associated with the concept from traditional US corporate reorganization practice.

The Rise of Trading

This chapter explores the second of the changes in logic and practice in the field of finance with which the book is concerned: the shift from hold-to-maturity debt investment strategies to trading strategies. The argument is made that the concept of collective action problems in US corporate reorganization law ought to be replaced by different concepts when the reorganization is among sophisticated, strongly adjusting financial creditors and investors and when debt trades in secondary markets. The chapter further argues that the more recent development of modern corporate reorganization law in England and Wales has enabled terms and concepts to emerge which are better adapted to traded debt markets. Overall, however, the chapter emphasizes the relationship between reduced salience of the collective action concept and a secondary market for distressed debt. It does not suggest a new, universal conceptual framework for corporate reorganization law in which the collective action concept is permanently replaced.

The Fall of the Honest Broker

Thus far, this book has focused on concepts which have played a crucial role in formulating the debate between economically minded and progressively minded scholars about the policy and content of corporate reorganization law. In contrast with these earlier chapters, Chapter 8 is concerned with a concept which has not divided corporate reorganization law scholars to date, but which now interacts with another corporate law field in a new way. The relevant concept is the concept of transparency and disclosure, and the proximate field in question is the law of insider trading. Chapter 8 explores why shifts in identities in the finance field raise entirely new questions about the implications of transparency and disclosure for insider trading and market abuse liability in both the US and England.