The interplay between liquidation and reorganization in bankruptcy: The role of screens, gatekeepers, and guillotines

• Published in: International review of law and economics 1996-03, Vol.16 (1), p.101-119
• Main Author: Triantis, George G.
• Format: Article
• Language: English
• Subjects: Bankruptcy; Bankruptcy reorganization; Comparative studies; Court decisions; Courts; Federal courts; Liquidation; State court decisions
• ISSN: 0144-8188; 1873-6394
• DOI: 10.1016/0144-8188(95)00052-6

There is nothing in the US Bankruptcy Code that would prevent US bankruptcy courts from imposing the same screens, gatekeepers, and guillotines that exist in the Canadian system. The record of US courts in this respect is poor. One wonders whether Canadian legislators and courts are vulnerable to the various forces that have led US bankruptcy courts to prolong reorganization cases. Yet, several important differences exist between the courts that decide bankruptcy matters in Canada and the US. In Canada, given the significant degree of concentration of reorganizations in a single court, judges motivated by the acquisitions of prestige are more likely to do what is considered socially optimal within this relatively small circle. In contrast, bankruptcy judges in the US are specialists who hear only bankruptcy cases. Thus, US bankruptcy judges who seek to maximize the influence and prestige that comes with having all the affairs and business decisions of a debtor under their purview might have the incentive to do their best to attract debtors into their courts and hold them there in a reorganization proceeding.