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Journal articles (2007), American Bankruptcy Law Journal, 81 (4), pp. 497-514

Does it Matter how Bankruptcy Judges Evaluate the Creditors' Best-interests Test?

Fisher Timothy, Martel Jocelyn

Court-supervised reorganization procedures like Chapter 11 and the Canadian Bankruptcy and Insolvency Act require judges to consider a ¿best-interests test¿, i.e., to determine whether creditors are better-off under reorganization than liquidation. Using data on firms reorganizing in Canada, we show that evaluating the best-interests test strictly according to economic theory yields the same outcomes as a simple rule that compares the sum of payments under reorganization to a firm¿s liquidation value. We argue that bankruptcy judges need not be concerned with the economic details of the best-interests test; a simple rule will suffice.

FISHER, T. and MARTEL, J. (2007). Does it Matter how Bankruptcy Judges Evaluate the Creditors' Best-interests Test? American Bankruptcy Law Journal, 81(4), pp. 497-514.

Keywords : #bankruptcy, #liquidation, #reorganization, #best, #interest-test