The New Evolution of Chapter 11

Ten years or so ago an article in the Yale Law Review criticized the Chapter 11 procedure as giving hold up power to lower echelons of creditors and claimants at the expense of the secured creditors.  Moreover the procedure was time consuming and expensive, lining the pockets of lawyers in particular.  Negotiations within the backstop of a simple Chapter 7 would be more efficient, it was argued.  The Chapter 11 bar closed ranks behind the procedure and the controversy subsided.  Now a new controversy.  Chapter 11, and perhaps new procedures that take the place of the Chapter 11 for financial institutions, are now the vehicle for government management.  Ironically, the government has chosen to injured secured creditors as well in favor of unsecured claims of labor and other favored constituencies.  This new development is more far-reaching and potentially harmful than the earlier charge of private hold-up power..