The Business, Entrepreneurship & Tax Law Review


Luke J. Doherty


Corporate reorganization, also known as Chapter 11 of the Bankruptcy Code (“the Code”), operates under the premise that, in certain circumstances, an insolvent business entity is better equipped to repay its debts if kept “alive” rather than “dead.” In such a case, the entity maintains operations but reorganizes its assets as a means to repay creditors. Today, however, this needed tool has provided some of the country’s largest economic players with a sort of liability shield, allowing them to avoid substantial legal accountability, particularly in tort. Non-debtor release forms, which shield corporate officers from corporate conduct, courts’ liberal use of the automatic stay, and the “Texas Two-Step,” which effectively permits a company to reorganize under the laws of a different state, have incentivized companies to file for Chapter 11 in the hopes of evading liability. In addition, due to the lack of any real “good faith” or “insolvency” requirement in the Code, financially solvent corporations have been able to file for bankruptcy to temporarily, or permanently, suspend individual lawsuits and state regulation. This is not to say the tenets of corporate reorganization rested upon need be abandoned, the case is quite the opposite, but legislative reform is necessary to prevent the weaponization of the Code. The Chapter 11 shield may only be used by a few, but its impact remains significant.

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