Secured Creditor Control and Bankruptcy Sales: An Empirical View

Since the early 2000s, the conventional view held by bankruptcy scholars is that the bulk of Chapter 11 cases are dominated by secured creditors, especially in large cases with more than $20 million of debt. It has been claimed that this creditor domination is so complete that it has been called “The End of Bankruptcy.” It is often claimed that this domination in turn has greatly increased sales of entire businesses under section 363 of the Bankruptcy Code in lieu of traditional reorganization. Analysis of a dataset from a cross section of 2006 Chapter 11 cases reveals that secured creditor control is important, but it is certainly not as pervasive as is commonly believed. This Article makes two major points: first, that the conventional picture of secured creditor control and section 363 sales is misleading and overstated; second, that the focus on very large cases instead of a cross section of Chapter 11 cases leaves a hole in the current research because our data suggest that dominant security interests are not strongly related to the size of the case. The data also make it clear that much more research will be necessary to understand the effects of secured credit on Chapter 11 cases and their outcomes.

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