Abstract
The high cost of bankruptcy reorganizations, particularly expenditures for attorneys, accountants and investment bankers, has received much attention in recent years. Professor Baker contends that fees are higher in chapter 11 because bankruptcy's priority system, combined with the mechanism for payment of professionals, creates economic incentives to over-spend on professional services in chapter 11. The "last class in the money" foots the bill for all professional fees. Other constituencies can spend freely for professional services because they do not bear the cost. Further, this system provides a litigation war chest to "out of the money" classes who have nothing to lose and everything to gain through litigation. The article proposes a modification to the fee structure which would correct the perverse economic incentives to over-litigate. This proposal would require each class of creditors or shareholders to bear its own professional costs.
How to Cite
38 Ariz. L. Rev. 35 (1996)
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