To Protect Their Interests: The Invention and Exploitation of Corporate Bankruptcy

Chapter 11 corporate bankruptcy proceedings are commonly thought of as a tool to protect the broader economy from the failure of large firms, even though the biggest players reap the greatest rewards. In the conventional telling, modern corporate reorganization began in the 1890s, with J. P. Morgan leading a noble effort to protect bondholders from the depredations of corporate insiders. What does this story leave out, and how do the true origins of bankruptcy law shed light on its present-day uses and abuses? To Protect Their Interests is a groundbreaking historical account of how corporate bankruptcy became what it is today-a forum for battles between well-heeled insiders. Stephen J. Lubben strips away the myths surrounding the history of corporate restructuring, showing that it emerged a decade before Morgan, when the robber baron Jay Gould strove to keep control of his railroad by working out a compromise with a handful of wealthy investors. The 1885 restructuring of Texas and Pacific Railway set the pattern for future corporate reorganizations: insider dealing, elite manipulation of the legal system, and judicial deference. Lubben traces the evolution of the bankruptcy system through a series of major cases involving companies such as W. T. Grant and Toys "R" Us, demonstrating that it has always been a way for the powerful to maintain power. Revealing the sordid origins of bankruptcy law, this book also considers the limited prospects for reform.

Table of Contents:
Introduction Part I. Foundations 1. The Early Days of Corporate Reorganization and Texas Railroads 2. Jay Gould and the Texas and Pacific 3. The Start of Corporate Bankruptcy Part II. Refinements 4. The Bankers Take Charge 5. The Statutes Arrive 6. The End of an Era Part III. Modernization? 7. The Deregulation of Corporate Bankruptcy 8. The Always Evolving Chapter 11 Part IV. Reform? 9. Modern Chapter 11 and the Ghosts of the Past 10. Chapter 11 Going Forward Acknowledgments Bibliography Notes Index

About the Author :
Stephen J. Lubben holds the Harvey Washington Wiley Chair in Corporate Governance and Business Ethics at Seton Hall University School of Law. His books include The Law of Failure: A Tour Through the Wilds of American Business Insolvency Law (2018). Lubben previously practiced bankruptcy law with a major global firm and wrote a column for the New York Times’ DealBook section.

Review :
To Protect Their Interests argues that the history of US bankruptcy law is the history of the most powerful insiders of the day adapting US bankruptcy law to further their aims and objectives: from Jay Gould and the railway barons to the banks involved in W. T. Grant to today’s private equity sponsors. Through his lively historical narrative, Lubben provides insights into the inherent malleability of corporate bankruptcy law and the implications of that adaptive capacity for the present-day reform agenda. This important book on large-scale corporate reorganization in America marries the sophistication of Harvard Business School-style case studies of key early railroad receiverships with deeply researched and often captivating historical narrative. J. P. Morgan and the Wall Street banks who perfected the practice weren’t heroes, Lubben contends, nor are the insiders who dominate Chapter 11 today. They use corporate restructuring to gild their own nests at the expense of those who are not powerful enough to withstand them.