Panel: Fix Broken Bankruptcy Law

Top restructuring professionals say U.S. corporate bankruptcy law is broken and are pushing lawmakers for changes that would give struggling companies a better shot at survival, according the Wall Street Journal.

In a recent report from the American Bankruptcy Institute’s Commission to Study the Reform of Chapter 11, industry professionals called on federal lawmakers to pass reforms they say would make the Chapter 11 process cheaper and more efficient, potentially saving jobs and stabilizing the economy.

Proposed changes to the law could make Chapter 11 cheaper and simpler for small businesses and also make it easier for small-business owners to hold on to their companies. Most companies that file for Chapter 11 protection would qualify for the new small-business guidelines, which apply to private businesses worth less than $10 million.

Executives at struggling businesses try to avoid bankruptcy for several reasons, including the cost and the fear that it will lead to liquidation, the report said. But those executives may decide instead to lay off longtime workers, sell important assets or take out unfavorable loans that end up putting the business at greater risk of shutting down.

According to a survey of more than 450 restructuring professionals cited by the report, struggling companies turn to bankruptcy-like processes available in some states that enable a company to cheaply sell its operations but distribute money to creditors in a way that can be less fair, the report said.

The report was written with input from more than 250 bankruptcy lawyers, judges, academics and financial advisors. The group was assembled by the nonprofit American Bankruptcy Institute, a Virginia-based trade group for professionals who work with the restructuring industry. S