This thesis attempts to discover the factors leading to such failures and to propose a cure. It argues that the basic structure of Chapter 11 of the Code, the debtor in possession structure, is one of the essential factors causing such a high rate of failure. The thesis further asserts that it is possible to reduce the rate of unsuccessful reorganization if the bankruptcy court exercises its power of case management more actively and expeditiously. For example, the court can screen the debtors' filing for relief before the reorganization case proceeds too far. Chapter II of this thesis examines the basic structure of Chapter 11 of the Code, the debtor in possession construct, to discover the factors leading cases to failure. This chapter argues that most of the failing cases have resulted from problems connected to the debtor in possession structure. In the ordinary course of events in most Chapter 11 cases, while the debtor continues to operate its business and manage its property as an entity known as the debtor in possession, its creditors suffer, for example, a lack of necessary information about the debtor's financial conditions. Moreover, they are often apathetic to the reorganization of the debtor because of, in part, the relatively high cost of participation compared to their claims. Under Chapter 11, the debtor in possession not only exercises its wide discretion in operating the business but also enjoys the exclusive right to propose a plan for at least 120 days. As a result, the debtor in possession has many incentives to take advantage of the process, such as abuses of the automatic stay and other strategies delaying the process. That, to some extent, explains why so many businesses filing for reorganization relief fail to reorganize or fail to survive the financial difficulties even after the plan has been confirmed. Chapter III discusses the provisions restricting such discretion of the debtor in possession. Under the Code, there are several institutional devices restricting the debtor in possession's seemingly absolute discretion. Among the restricting methods, Chapter III deals mainly with the mandatory creditors' committee and the fiduciary duties of the debtor in possession. Other restricting methods will be discussed in detail in the following chapters.
NOH, YOUNG ROCK, "BANKRUPTCY REORGANIZATION: LEGAL DYNAMICS ASSOCIATED WITH ECONOMIC DISCONTINUITY" (2000). LLM Theses and Essays. 250.