Large corporate debtors typically include broad legal disclaimers in their financial disclosures to the bankruptcy court, such that the valuation estimates they offer in support of a proposed plan of reorganization are essentially meaningless. Some bankruptcy courts, however, discourage parties from litigating valuation; instead, they encourage them to negotiate, trusting that to the extent the debtor’s estimates are woefully out of sync, the bargaining process will cause the debtor to pursue a restructuring that rests upon a more accurate value estimation. Meanwhile, these same courts interpret a lack of viable challenges to the debtor’s valuation estimates as evidence of their accuracy: if the value of the debtor’s assets truly exceeded the amount of its liabilities, then large and powerful investors would enter the fray. But this so-called “Implicit Market Test” is deeply flawed. This Article uses a timely case study—the Chapter 11 bankruptcy reorganization of Allied Nevada Gold Corp.—to demonstrate how these realities of modern commercial bankruptcy practice threaten to erode important safeguards in the Bankruptcy Code.
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