Assessing the Chrysler Bankruptcy

Bankruptcy scholars Mark Roe and David Skeel have a new paper on SSRN “Assessing the Chrysler Bankruptcy.” Their conclusion?  Not so good.  Here’s the abstract:

Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the 19th and early 20th century equity receiverships, and that its potential, if followed, for disrupting financial markets surrounding troubled companies in difficult economic times is more than small.

(Hat tip: Professor Bainbridge)

On a related note, Indiana Governor Mitch Daniels had an op-ed in the WSJ this week on the Indiana pension funds’ challenge to the Chrysler bankruptcy.