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The Bankruptcy StrategistLJN NewslettersNewsSections

The Changing Face of Chapter 11

By Louis A. Recano and Scott Y. Stuart
December 21, 2007

The face of bankruptcies in corporate America has changed multiple times since the reforms of 1978. And it's going to change once more ' probably radically ' over the coming months. Starting about 30 years ago, bankruptcy represented freedom to restructure without the stigma of failure. It then morphed into a business tool that some of the largest and most sophisticated companies in America chose to use to reorganize in specific, strategic ways. Then the era of liquidity, which is now coming to a close, took hold. During this period, which was activated by hedge funds and private equity, bankruptcies grew less frequent. They became most useful as an opportunity to use the process to create quick sales, equity swaps and sophisticated yet pre-arranged partnerships among a company's money players. Following the 2005 Amendments to the Bankruptcy Code, bankruptcies became even scarcer.

Now, we move into a new place, as the good times come to an end. Will this mean we'll see bankruptcies the way they existed in the late 1990s and early 2000s? Or will it be something less traditional as defaults climb, money becomes harder to borrow and Chapter 11 becomes the only way to test survivability of companies that desperately need ' and may have for a long time desperately needed ' a traditional restructuring? One thing is certain: Chapter 11 is once again in play. In this article we look at the trail of modern bankruptcy ' and begin to parse the next phase.

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