This Note will attempt to explain the intersection of agency costs and bankruptcy law, looking first to general agency problems involved when firms are insolvent and moving next to discussions of how U.S. Chapter 11 and French bankruptcy laws attempt to address these problems. First, I will attempt to articulate the relationship between agency costs and (1) debtor control over the firm during Chapter 11 reorganizations and (2) deviations from the absolute priority rule in Chapter 11. Specifically, I will argue that creditors voluntarily accede to plans proposed by management that impair the same creditors' legal entitlements, and that this otherwise irrational behavior is an attempt to reduce the agency conflicts inherent in the creditor-management and creditor-shareholder relationships of an insolvent firm.
Can the Sauvegarde Reform Save French Bankruptcy Law?: A Comparative Look at Chapter 11 and French Bankruptcy Law from an Agency Cost Perspective,
Mich. J. Int'l L.
Available at: https://repository.law.umich.edu/mjil/vol27/iss1/6