Car Trouble

By common account, the reorganizations of Chrysler and General Motors were extraordinary cases, very much alike, but different from any other. Government intervention on such a scale is not likely to recur and, given their peculiar character, these bankruptcies offer few lessons for corporate reorganizations as a general matter. This essay suggests that this perception is fundamentally wrong. Each case presented a radically different challenge for the bankruptcy system. Moreover, these two distinct challenges, far from being unusual, are not particularly related to the fact of government involvement and are likely to recur many times. The debate over speedy sales of businesses in Chapter 11 is over. Sales are now the norm in large reorganizations. Instead of asking whether there should be sales in bankruptcy, we need to ask how to police various forms of abuse. The principal types of abuse derive from where the controlling creditor lies in the capital structure. In both Chrysler and General Motors, the government was simply a large creditor exercising control over its debtor and pushing for a speedy sale of the assets. But because the government occupied different places in the capital structures in the two cases, the legal challenges were altogether different. Together they capture the issues central to large Chapter 11 cases today