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Review of Law & Economics

Editor-in-Chief: Parisi, Francesco

Ed. by Cooter, Robert D. / Gómez Pomar, Fernando / Kornhauser, Lewis A. / Parchomovsky, Gideon / Engel, Christoph

3 Issues per year

CiteScore 2016: 0.22

SCImago Journal Rank (SJR) 2016: 0.197
Source Normalized Impact per Paper (SNIP) 2016: 0.355

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Volume 8, Issue 1


The Costs and Benefits of Secured Creditor Control in Bankruptcy: Evidence from the UK

John Armour / Audrey Wen-hsin Hsu / Adrian Walters
Published Online: 2012-05-17 | DOI: https://doi.org/10.1515/1555-5879.1507

The theoretical literature debates whether debtors should be permitted to contract with lenders over control rights in bankruptcy. Proponents point to coordination benefits from concentrating control rights; detractors point to inter-creditor agency costs. A recent reform of UK bankruptcy law provides an opportunity to test these theories. Until 2003, UK bankruptcy law permitted firms to give complete ex post control to secured creditors, through a procedure known as “receivership.” A bankruptcy reform then required firms to use a different procedure, “administration,” which confers greater control on unsecured creditors. We present empirical findings from a hand-coded sample of 340 bankruptcies from both before and after the change in the law. Whilst gross realizations have increased following the change in the law, these have tended to be eaten up by increased bankruptcy costs. We infer that dispersed and concentrated creditor governance in bankruptcy may be functionally equivalent.

About the article

Published Online: 2012-05-17

Citation Information: Review of Law & Economics, Volume 8, Issue 1, Pages 101–135, ISSN (Online) 1555-5879, DOI: https://doi.org/10.1515/1555-5879.1507.

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©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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