Barry Adler, the Charles Seligson Professor of Law, testified on September 26 before the Committee on the Judiciary's Subcommittee on Commercial and Administrative Law in the U.S. House of Representatives. The hearing was entitled "Lehman Brothers, Sharper Image, Bennigan's, and Beyond: Is Chapter 11 Bankruptcy Working?"
Adler noted that in the wake of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, there has been a "sea change" in bankruptcy reorganization for large, publicly traded companies. The shift has been from debtor to creditor control of bankruptcy, Adler said, with a trend toward more meaningful changes to the organization's management structure as firms attempt to address the roots of fiscal difficulties. The shift has also resulted in a greater number of firms being liquidated, which can be a better solution, Adler said, than a futile capital restructuring that fails to solve the real problem. "A new financial structure will not long help a debtor that is economically inviable," he told the Subcommittee.
As for the bottom-line impact of the law, Adler said, "Did the judges who established the precedent of permissible creditor control and the Congress in 2005 get it right? Although no system is perfect, there is reason to believe that the answer to this question is 'yes.'"
