Absolute priority, valuation uncertainty, and the reorganization bargain.: An article from: Yale Law Journal

by Douglas G. Baird, Donald S. Bernstein

List Price:	~~$9.95~~
Amazon Price:	$9.95 & eligible for FREE Super Saver Shipping on orders over $25.
Lowest New Price:	$9.95
Availablitiy:	Available for download now

Editorial Reviews
Product Description
This digital document is an article from Yale Law Journal, published by Thomson Gale on June 1, 2006. The length of the article is 19366 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

From the author: In a Chapter 11 reorganization, senior creditors can insist on being paid in full before anyone junior to them receives anything. In practice, however, departures from "absolute priority" treatment are commonplace. Explaining these deviations has been a central preoccupation of reorganization scholars for decades. By the standard law-and-economics account, deviations from absolute priority arise because well-positioned insiders take advantage of cumbersome procedures and permissive judges. In this Essay, we suggest a different force is at work. Deviations from absolute priority are inevitable even in a world completely committed to respecting priority as long as the value of the reorganized enterprise is uncertain. Uncertainty accompanies any valuation procedure. Bargaining in corporate reorganizations takes place in the shadow of this uncertainty, and standard models of litigation and settlement show that valuation uncertainty alone can explain many of the departures from absolute priority in large corporate reorganizations. Even when rational and well-informed senior investors expect the absolute priority rule to be strictly enforced, they must take into account the uncertainty associated with any valuation. The possibility of an unexpectedly high appraisal may sometimes cause them to offer apparently out-of-the-money junior investors contingent interests in the reorganized business. The debate over absolute priority--the central principle of modern corporate reorganization law--has been misdirected for decades. It has failed to recognize that a substantive rule of absolute priority does not always lead to absolute priority outcomes. A coherent account of reorganization outcomes must take into account the junior investors' right to insist on an appraisal the result of which is uncertain. This uncertainty may by itself give that right option value. The most sensible path for reform is one that seeks to minimize this valuation uncertainty.

Citation Details
Title: Absolute priority, valuation uncertainty, and the reorganization bargain.
Author: Douglas G. Baird
Publication: Yale Law Journal (Magazine/Journal)
Date: June 1, 2006
Publisher: Thomson Gale
Volume: 115 Issue: 8 Page: 1930(41)

Distributed by Thomson Gale

Price is accurate as of the date/time indicated. Prices and product availability are subject to change. Any price displayed on the Amazon website at the time of purchase will govern the sale of this product.