Distress Dynamics in Bankruptcy.

Cover -- Title Page -- Table of Contents -- Glossary -- 1 Introduction -- 1 Introduction of the topic -- 2 Central subject of this book and limiation of scope -- 3 Overview of contents -- 4 Methodology -- 2 Efficient bankruptcy law in the U.S. and the Netherlands. Establishing an assessment framework -- 1 Bankruptcy procedure in the US -- 2 Bankruptcy procedure in the Netherlands -- 1 Why does bankruptcy law exist? -- 1.1 The common pool problem -- 1.2 The balance-sheet insolvent debtor -- 1.3 The cash-flow insolvent debtor -- 1.4 Commons and anticommons -- 2 The (hypothetical) creditors' bargain -- 3 The creditors' bargain theory and absolute priority -- 4 The creditors' bargain theory and the new value exception -- 1 Risk sharing as a goal of bankruptcy -- 1.1 Diversification of common risks -- 1.2 Minimizing perverse incentives on the eve of bankruptcy -- 1.3 Protection of idiosyncratic value -- 1.4 Protecting non-consensual claims -- 2 Why risk sharing is not a goal of bankruptcy -- 2.1 Limited class of beneficiaries -- 2.2 Higher costs because of behavior by secured creditor -- 2.3 Higher costs because of behavior by manager-shareholder -- 2.4 Contractual risk sharing as an alternative for mandated risk sharing -- 3 Rehabilitation and the interests of non-property right holders as a goal of bankruptcy -- 3.1 The justification for including non-economic values in the goals ofbankruptcy law: the rehabilitation view -- 3.2 The justification for including non-economic values in the goals ofbankruptcy law: feminism and communitarianism -- 3.3 The justification for including non-economic values in the goal ofbankruptcy law: the bankruptcy choice situation -- 3.3.1 Bankruptcy as a response to financial distress -- 3.3.2 The bankruptcy choice model -- 4 The case against introducing substantive policies in bankruptcy.

4.1 The social costs of internalization -- 4.1.1 Re-distributional objectives increase the cost of credit -- 4.1.2 The forum shopping problem -- 4.1.3 Equity reasons -- 4.2 Redistribution of wealth by other means than internalization -- 4.3 The lack of a clear and consistent value view-framework -- 5 Team production theory as an explanation for bankruptcy law -- 5.1 The team production problem -- 5.2 Team production theory -- 5.3 Team production theory: maximizing stakeholder value and themediating hierarch -- 5.4 The team production theory in bankruptcy -- 6 Why the team production theory is inadequate -- 6.1 The primacy of shareholder value maximization -- 6.2 Team production theory does not work in bankruptcy -- 3 Shaping bankruptcy. What form shouldit take? -- 1 Bankruptcy procedure in the U.S. -- 2 Bankruptcy procedure in the Netherlands -- 1 The administrative reorganization procedure -- 1.1 The administrative reorganization procedures -- 1.2 Costs of an administrative reorganization procedure -- 1.2.1 Valuation uncertainty -- 1.2.2 Direct costs -- 1.2.3 Speed -- 1.2.4 Perverse incentives for management -- 2 Ex ante capital structures -- 2.1 Chameleon Equity -- 2.1.1 The Chameleon Equity structure -- 2.1.2 The Chameleon Equity structure elaborated -- 2.2 Contingent Equity -- 2.3 The difference between Chameleon Equity and Contingent Equity -- 2.4 The costs of automatic restructuring -- 2.5 Bankruptcy as a default rule: a choice by menu -- 2.5.1 Bankruptcy as a term of contract -- 2.5.2 The bankruptcy menu -- 2.5.3 Selecting and changing options -- 2.6 Costs of the menu approach -- 2.7 The costs of contractualism -- 3 The auction-alternative -- 3.1 A mandatory auction regime -- 3.2 The costs of a mandatory auction regime -- 4 (Stock) market based approaches -- 4.1 Options theory -- 4.1.1 The options procedure -- 4.1.2 Possible complications.

4.2 Options theory 2.0 -- 4.3 The costs of the option approach -- 1 The advantage of the alternatives: correct valuation -- 2 The drawbacks of the alternatives -- 3 How high are the costs of an administrative reorganizationprocedure really? -- 3.1 Direct costs -- 3.2 Speed -- 3.3 Perverse incentives for management -- 3.4 The valuation problem: an evolution -- 4 An assessment of Dutch bankruptcy asset sales -- 1 Introduction -- 2 Guiding principles for trustee in asset sales? -- 3 The sale of assets under Dutch law: 101 DBC -- 3.1 The current assessment standard for asset sales -- 3.2 Maximizing value as a goal -- 3.2.1 The goal of bankruptcy in the Netherlands -- 3.2.2 The goal of bankruptcy in the Netherlands and the creditors' bargain theory -- 3.2.3 Maximizing value and Section 101 DBC -- 3.2.4 Maximizing value and Section 101 DBC: overbidding -- 4 Creditors with a right of summary execution and asset sales -- 4.1 The right of summary execution -- 4.2 Section 101 DBC and creditors with right of summary execution -- 4.2.1 Reasonable time limit of Section 58 DBC -- 4.2.2 Cooling-off period of Section 63a DBC -- 4.2.3 Abuse of power -- 4.3 Overriding the secured creditor -- 5 Method of sale -- 5.1 Statutory framework for the method of sale -- 5.2 Public auctions in the context of a summary execution -- 5.3 Public auctions and the creditors' bargain theory -- 5.4 Private sales and insiders -- 6 Conclusion -- 5 The sale process in a pre-packaged assetsale -- 1 Introduction -- 2 The problem of the 'melting ice cube -- 2.1 Bankruptcy law as solution for a common pool problem -- 2.2 Blocking of individual recourse does not prevent value decrease -- 3 The pre-pack as solution -- 4 The risk of the pre-pack: faulty pricing -- 5 Information rights of trustee -- 5.1 Need for free access to complete books and records.

5.2 Need for possibility of free access to third parties -- 6 Control of the sale process by the intended trustee -- 6.1 Risk that debtor continues for too long -- 6.2 Risk that debtor fails to approach potential buyers -- 6.2.1 Accountability obligations insufficient -- 6.2.2 Informal powers of intended trustee insufficient -- 6.2.3 The added value of a public sale process for pricing -- 6.2.3.1 The American 363-sale and the concept of the stalking horse -- 6.2.3.2 (Un)certainty for stalking horse: bid procedures -- 6.2.3.3 Dutch market too small for public sale process -- 6.2.4 Safeguarding the approach of potential buyers by the debtor: how to do it? -- 7 Conclusion -- 6 The Dutch reorganization plan. Anassessment of the efficiency of the legal framework from the perspective of the creditors' bargain theory -- 1 Introduction -- 2 The creditors' bargain theory -- 3 The legal framework of the Dutch reorganization plan -- 3.1 Bringing about the reorganization plan -- 3.2 Confirmation of the reorganization plan -- 3.3 Dissolution of the reorganization plan -- 4 Assessing the legal framework in light of the creditors' bargain theory -- 4.1 Cramming down a reorganization plan in light of the creditors' bargain theory -- 4.2 Binding creditors with a right of preference in light of the creditors' bargain theory -- 4.3 Confirmation of the reorganization plan in light of the creditors'bargain theory -- 5 Conclusion -- 7 The cram down plan outside of bankruptcy: CEA 2 and conflicts of interest assessed -- 1 Introduction -- 2 The CEA 2: bankruptcy law or not? -- 2.1 Why a collective recourse method I: common pool -- 2.2 Why a collective recourse method II: anticommons -- 3 The added value of the CEA 2 -- 4 The cram down plan outside of bankruptcy: bankruptcy or not? -- 4.1 The twilight period before the cram down plan is adopted and CEA 2.

4.1.1 Individual recourse possible under CEA 2 -- 4.1.2 Possibility of suspending handling of bankruptcy filing under CEA 2 -- 4.1.3 European Commission does recommend general moratorium -- 4.2 The twilight period before the cram down plan is adopted and the creditors' bargain theory -- 4.2.1 Common pool problem = imposing collective recourse -- 4.2.2 The (lack of a) common pool problem during the twilight period after a cram down plan is offered -- 5 The 'lock-in' of creditors and its exceptions -- 5.1 First relativization: payment of new creditors -- 5.2 Second relativization: essential suppliers -- 5.3 Third relativization: selection of creditors and shareholders who are impaired -- 6 The position of shareholders under a cram down plan -- 6.1 Shareholders and CEA 2 -- 6.2 Shareholders and the creditors' bargain theory -- 7 Conclusion -- 8 Summarizing conclusion -- 1 Introduction -- 2 Determining 'efficiency': upgraded creditors' bargain theory -- 2.1 The creditors' bargain theory as explanation for bankruptcy law -- 2.2 Criticism on creditors' bargain theory is not convincing -- 2.3 The goal of bankruptcy under the creditors' bargain theory showsresemblance with Dutch bankruptcy law, but is not the same -- 2.4 The upgrade: anticommons as justification for reorganizational law -- 3 The efficiency of bankruptcy law regarding asset sales -- 3.1 Introduce a possibility to override creditors with a right of summary execution -- 3.2 Method of sale in asset sale -- 3.2.1 Public auctions: ensure value maximization by modernizing -- 3.2.2 Private sales: introduce a duty of care for insiders -- 3.3 Method of sale in a pre-packaged asset sale: increased risk of faulty pricing -- 3.4 Guaranteeing integrity of sale process: information rights and steeringof sale process -- 3.4.1 Steering the sale process I: intended trustee should be able to file forbankruptcy.

3.4.2 Steering the sale process II: stalking horse may be useful to ensure enough potential buyers.

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