Rediscovering Corporate Governance in Bankruptcy

In this Essay on Lynn LoPucki and Bill Whitford’s corporate reorganization project, written for a symposium honoring Bill Whitford, I begin by very briefly describing its historical antecedents. The project draws on the insights and perspectives of two closely intertwined traditions: the legal realism of 1930s, whose exemplars included William Douglas and other participants in the SEC study; and the law in action movement at the University of Wisconsin. In Section II, I briefly survey the key contributions of the corporate governance project, which punctured the then-conventional wisdom about the treatment of shareholders in bankruptcy, managers’ principal allegiance, and many other issues. In Section III, I consider two major shifts that have taken place in Chapter 11 practice in the twenty-five years since the study: the rise of creditor influence in Chapter 11, and shifts in the principal participants in (and scope of) large corporate reorganization cases. In Part IV, I explore one of LoPucki and Whitford’s key proposals—compensation for unsecured creditors when they are made to bear business risk in bankruptcy—and consider its potential relevance for the hotly debated, current question of the scope of a secured creditor’s lien in bankruptcy