Abstract
When a corporate debtor defaults on an obligation to a lender, the two parties will often attempt to renegotiate the loan agreement to give the debtor a chance to cure the default. Lenders view these "workout" agreements as an opportunity to obtain concessions from the debtor that would adversely affect the debtor's legal position in any subsequent bankruptcy filing. Typically, the lender demands that the debtor agree to waive or modify protections it would gain in bankruptcy. The most common of these waivers found in a workout agreement is the waiver of the automatic stay. Upon the filing of a bankruptcy, petition, the automatic stay operates to prevent the debtor's creditors from taking essentially any collection action against the debtor or the bankruptcy estate. The essential role the automatic stay plays in bankruptcy cannot be overstated. The stay preserves the debtor's pool of assets for the benefit of all the creditors. In exploring the arguments supporting and opposing the validity of waivers of the automatic stay, this article advances the notion that economic principles support allowing the debtor to waive the automatic stay when a waiver effects a privatization between one debtor and one creditor which resolves the common pool problem. Most fundamentally, this position supports upholding the validity of waivers of the automatic stay in cases such as single asset real estate scenarios, where there is but one creditor and one debtor.
How to Cite
38 Ariz. L. Rev. 1 (1996)
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