Adam J. Levitin (Georgetown University Law Center) and Stephen J. Lubben (Seton Hall Law School) have posted The Federal Corporate Law of Bankruptcy on SSRN. Here is the abstract:
Corporate law is normally the province of state law, but when a corporation files for bankruptcy, federal law takes over, as title to all the corporation’s property is deemed transferred to a new federal legal entity called the “bankruptcy estate.” In chapter 11 bankruptcy, the estate is still controlled by the corporation’s old management as a “debtor in possession” (DIP), but because it is a creation of federal law, its corporate governance is controlled by federal, rather than state law. This shift in governing law is frequently overlooked by courts and practitioners, who often defer to state corporate law regarding the estate. The shift, however, has profound consequences for chapter 11 practice because in bankruptcy corporate law is a key tool for ensuring distributional fairness among claimants, rather than merely addressing shareholders’ principal-agent problem with management.
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