Bankruptcy Judging After Williamson

This Essay asks how bankruptcy judges ought to orient their substantial, statutory discretion in business reorganization cases. The motivating observation is that bankruptcy law enacts a kind of forced integration of productive assets. To shed light on the contemporary problems that bankruptcy judges face, I thus look to two classic approaches to the economic theory of the firm—from Oliver Williamson and from Oliver Hart. I conclude that nonjudicial institutions have largely surmounted the problems to which their theories point, leaving a different, and probably narrower, set of issues to worry about.

Bankruptcy judges who have a notion that their job is, in part, to push parties to a “deal” should instead focus on policing efforts by some of a debtor’s investors to capture value from a recapitalization deal to which their pre-distress bargain does not entitle them.