Hedge Funds in Bankruptcy

(Excerpt) Hedge funds and other professional and institutional investors are playing an increasingly important role in bankruptcy cases. As buyers of financially distressed securities, they provide a valuable outlet for holders of such securities who wish to exit those markets. They also facilitate the consolidation of distressed securities into the hands of owners who are well-equipped to press for outcomes in Chapter 11 cases that maximize the value of those securities. At the same time, the active participation of hedge funds in the bankruptcy process at times gives them access to nonpublic information that may afford them an undue advantage in their ongoing trading activities. To balance these competing considerations, various practices have developed to regulate hedge funds in ways that attempt to preserve the value that they add to the bankruptcy process while also eliminating any improper advantage that participation in that process may confer. These measures and various proposals for their reform, which have been hotly debated within the bankruptcy and hedge fund communities, were the subject of a recent symposium at St. John\u27s School of Law whose fruits you now have before you. The eight papers that appear in this symposium issue of the American Bankruptcy Institute Law Review come from a diverse and distinguished group of scholars, practitioners, and public officials. In the grand tradition of interdisciplinarity that for nearly a century has informed academic discourse on bankruptcy law and policy, these papers are representative of the very best in bankruptcy scholarship