Introduction to the Symposium "Convergence on Delaware: Corporate Bankruptcy and Corporate Governance"
Elson, Charles M., Rasmussen, Robert K., Vanderbilt Law Review
Bankruptcy is back. The use of Chapter 11 by large, publicly held firms was a subject of much debate in the academic and popular press in the late 1980s and the early 1990s. Firms such as Texaco, Revco, LTV, Federated Department Stores, Maxwell Communications, TWA, and Eastern Airlines all filed for bankruptcy during that time. The economic boom of the mid- and late 1990s, however, resulted in a relative dearth of high-profile bankruptcy cases. The recent economic downturn has moved corporate reorganizations back into the spotlight. The Chapter 11 filings by firms such as Enron, Global Crossing, the Loewen Group, US Airways, United Airlines, and WorldCom have focused attention once again on Chapter 11. Yet today's bankruptcy practice has changed notably since our last wave of major bankruptcies.
The most visible change in the reorganization of large, publicly held companies in the past fifteen years has been the rise of the Delaware bankruptcy court. As of 1990, a firm looking to reorganize under Chapter 11 would most likely file its bankruptcy petition in the Southern District of New York. Today, such firms look first and foremost to Delaware. Indeed, other courts are changing their practices to mirror those of Delaware. This switch in the lead venue of reorganization practice raises two sets of questions. The first set of questions focuses directly on this trend. Delaware's prominence in corporate law has spawned a decades-old debate over why firms choose Delaware and whether the forces that drive firms to Delaware create a body of corporate law that advances or impedes societal interests. The rise of the Delaware bankruptcy court raises similar inquiries. In short, we need to explore why firms now choose to file for reorganization in Delaware, and whether the switch to Delaware is one that should be applauded or condemned.
The stampede to Delaware raises a second set of questions as well. Delaware now seems to be the home of both corporate law and corporate bankruptcy law. This overlap fuels speculation about the appropriate relationship between bankruptcy law and corporate governance. The questions that implicate both corporate law and bankruptcy law include whether primary regulation should come from the federal government or from the states, whether law should be mandatory or not, and what the appropriate allocation of decisionmaking authority is for the future of the firm.
The Vanderbilt University Law and Business Program, the Center for Corporate Governance at the University of Delaware, and the Vanderbilt Law Review organized this Symposium, "Convergence on Delaware: Corporate Bankruptcy and Corporate Governance," to address these issues. The Symposium, held at the Vanderbilt University Law School on February 22 and 23, 2002, brought together leading bankruptcy academics and practitioners to discuss the various issues raised by the convergence on Delaware.
Three articles in this Symposium issue directly address the rise of Delaware as the bankruptcy forum of choice. Marcus Cole's contribution recounts the story of Delaware's rise to prominence. Drawing on interviews with practitioners and bankruptcy judges, Cole explains the factors that affect how the managers of a firm select the venue in which to file. Based on these interviews, he concludes that there is a subset of bankruptcy judges who are in competition with each other for high-profile cases. He notes that there are potential gains from such competition and considers two reforms of extant law that could engender even more competition.
Lynn LoPucki and Joseph Doherty attempt to assess the efficacy of the Delaware and Southern District of New York bankruptcy courts. Earlier work by LoPucki and Sara Kalin suggested that firms that file in Delaware and the Southern District of New York and subsequently emerge from bankruptcy tend to file a second reorganization more often than firms that file for reorganization in other courts. …