The length of time companies remain in bankruptcy reorganization is critically important. During that time, the business is at risk because management incentives are inappropriate, professional fees accrue at a rapid rate, and business uncertainties increase. Creditors may be injured because the reorganizing debtor does not make payments during the case and because some creditors are not entitled to accrue interest during the pendency of the case. In this Article, Professor LoPucki presents data from several studies showing approximately a 150% increase from 1964 to 1987 in the median time companies spend in Chapter 11. Using data from other studies, he shows that the median time large, publicly held companies spend in Chapter 11 did not increase during that same period. He argues that the increase in the time ordinary companies remain in Chapter 11 resulted from the adoption in 1978 of a reorganization procedure appropriate only to the largest bankruptcy reorganization cases. He advocates a number of procedural changes to remedy the problem; the most important is the adoption of a separate procedure, applicable to the large majority of bankruptcy cases, that is more appropriate to their size. Professor LoPucki discusses current efforts to enact such a procedure and documents resistance to the effort by prominent members of the bankruptcy bar.
Lynn M. LoPucki, The Trouble with Chapter 11, 1993 Wis. L. Rev. 729