Wednesday, October 28, 2009
Mark Roe and David Skeel have a new paper, Assessing the Chrysler Bankruptcy. In the paper they argue that the Chrysler 363 sale pushes us back to the practices of the 19th century - those were some pretty dark days from a corporate governance perspective with bought courts appointing receivers left and right.
Abstract: Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the 19th and early 20th century equity receiverships, and that its potential, if followed, for disrupting financial markets surrounding troubled companies in difficult economic times is more than small.