When Bankruptcy Meets Antitrust: The Case for Non-Cash Auctions in Concentrated Banking Markets


One of the most heated debates in bankruptcy law scholarship has been the optimal design of corporate bankruptcy law. While traditionalist scholars defended the actual practice of Chapter 11 of the Bakruptcy Code, the law-and-economics movement has by and large heavily crticized Chapter 11 and called for its replacement. Several models of corporate bankruptcy have been offered in the literature as imporved alternatives thereto. In this article, I examine the various models offered in the literature, as well as the basic model of Chapter 11, against a certain realistic background: that of an economy characterized by the concentrated dominance of a few banks. Concentrated banking has been a subject of economic research in recent years. However, what has been lacking is a clear analysis of the ramifications of concentrated banking on corporate bankruptcy. This paper fills this gap by presenting such an analysis. In the paper, I show the anticompetitive measures which the banks, as senior lenders of the corporate debtor on one hand and the financers of any cash-driven resolution of bankruptcy on the other hand, might impose. Such measures cast doubt whether the various bankruptcy substitute models previously porposed, all of which rely on the use of cash money in the resolution of the debtor's financial distress, are applicable to concnetrated banking markets. As a result, this paper calls for implementing a market-based bankruptcy regime which allows the acquisition of the debtor firm through the use of non-cash payment instruments. The article shows how such a regime would encourage a healthy competition over the control of the corportae debtor and enhance the return to its prebankruptcy creditors.


Banking and Finance Law | Bankruptcy Law | Business Organizations Law

Date of this Version

March 2005