Where Do All the Corporate Debtors Go During Reform Time?

Dr. Terrence Halliday, a sociologist at the American Bar Foundation, shifted us back to corporate insolvencies. His paper, Missing Debtors: National Lawmaking and Global Norm-Making of Corporate Bankruptcy Regimes, discusses the systems that are created to regulate corporate debt and corporate debtors. He notes that some debtors who have a keen interest in corporate bankruptcy regimes are missing from the table when those regimes are being discussed at UNCITRAL meetings, in World Bank or IMF discussions. Why are they absent?

Dr. Halliday suggest that it may be that some debtors think they will never need to file for bankruptcy, some may in fact not need to rely on national bankruptcy laws, others are unable to collectively mobilize, some may fear the stigma associated with being declared insolvent, others may be excluded from the process, and some may be adequately represented in the process by other stakeholders. Most of his talk focused on the last point and he listed as other stakeholders lawyers, judges, law professors, and international professional associations. He suggests that professionals, with their technical knowledge and experience with lobbying or legal reform, have the ability to influence the process and have an incentive to do so for a number of reasons.

First, lawyers like to be able to use law to make a difference. We also like having a broad scope to mobilize law and to use ingenuity to preserve jobs, rehabilitate firms, etc. Notwithstanding our influence in the process, Dr. Halliday argues that it’s crucial to involve debtors themselves in the reform process because, if they are not involved, they will find ways to thwart the implementation of the insolvency procedures if those procedures are ever applied to them

Professor David Skeel, a law professor at the University of Pennsylvania, thinks that there may still be a stigma attached to filing for bankruptcy and he thinks that odium affects the political process. He praised Dr. Halliday’s book for providing a rich, descriptive account of bankruptcy reforms in countries affected by the Asian bank crisis (including Korea, Indonesia, and China) but felt there was a bit of a mismatch between the case studies and the conclusions the book reaches.