BANKRUPTCY-STATUS OF CLAIMS IN BANKRUPTCY PROCEEDING FOLLOWING DEFAULT IN CHAPTER XI ARRANGEMENT

Authors

Myron J. Nadler S.Ed., University of Michigan Law SchoolFollow
L. B. Lea S.Ed, University of Michigan Law SchoolFollow

Abstract

A significant question arising under the Bankruptcy Act of 1938 which has not been satisfactorily dealt with by the statute is the relative status, in a bankruptcy proceeding precipitated by the debtor's default under the terms of a chapter XI arrangement, of claims of creditors participating in the arrangement and of those who became creditors after confirmation. Specifically, the problem is whether the old creditors, those who participated in the arrangement, can prove to the amount of their original claims, or merely to the extent of their claims as scaled down by the terms of the arrangement; and whether the new creditors, those extending credit after confirmation of the arrangement, can participate in the bankruptcy proceeding, and if so, whether their claims should be accorded priority over those of the old creditors. A satisfactory solution must be premised upon the policy underlying chapter XI arrangements, debtor rehabilitation. To foster rehabilitation, the status accorded old and new claims should provide an incentive to old creditors to participate in the arrangement, and, at the same time, furnish an inducement to new creditors to extend credit after confirmation. The statute contains no express solution to these problems. The few courts considering the matter have reached divergent and unsatisfactory results. It has been recognized that the answer lies in legislative action, for a proposed amendment is currently pending before Congress. Facing the possibility of a business recession, an examination of the problem and its background and evaluation of the proposed legislation are particularly timely and desirable.

Recommended Citation

Myron J. Nadler S.Ed. & L. B. Lea S.Ed, BANKRUPTCY-STATUS OF CLAIMS IN BANKRUPTCY PROCEEDING FOLLOWING DEFAULT IN CHAPTER XI ARRANGEMENT, 47 Mich. L. Rev. 1167 (1949).
Available at: https://repository.law.umich.edu/mlr/vol47/iss8/9