Chapter 11, Corporate Governance and the Role of Examiners

In this Article, Stefan Korch of the Max Plank Institute for Comparative and International Private Law, Hamburg, proposes using preliminary examiners as part of bankruptcy. The author argues that the Chapter 11 debtor-in-possession model causes major corporate governance problems due to management incentives that do not align with creditor interests. The bankruptcy court has, however, a strong instrument to detect and undo wrongdoing: the appointment of examiners. To overcome the expense and complication associated with traditional examiners, the author proposes the appointment of preliminary examiners. These examiners would conduct a summary investigation to detect potential violations of the law and report their findings to the bankruptcy court. On that basis, the court could make a more informed decision on the initial question of whether to appoint an ordinary examiner and, further, on the scope of her mandate. The main advantage compared to traditional examiners would be the substantially lower costs. This reform proposal would not only help to enrich the estate in the individual case but would also deter wrongdoing in the future. It hence can be understood as a tool to improve corporate governance in financially distressed or bankrupt companies