Business failure negatively affects a broad range of interests, yet the bankruptcy process directly protects only a small segment of interest-holders: the creditors. Some commentators argue for expansion of that protection to encompass redistributive norms and provide for the interests of non-investors in the failed business. The Bankruptcy Reform Act of 1994’s establishment of a national commission to study the bankruptcy process and its broader policy implications brings with it the opportunity to consider that redistributive argument and perhaps change the process to include the interests of non-investors under the reorganization umbrella. This Article responds to those who would have the bankruptcy reorganization process protect the interests of non-investors in the failed enterprise. The author outlines the arguments both for and against such protection, and concludes that the bankruptcy process is institutionally incapable of achieving redistributive goals. This process-oriented view of business reorganizations holds that protection of non-investor interests should be left to those institutions and processes capable of competently providing it.
Christopher W. Frost, Bankruptcy Redistributive Policies and the Limits of the Judicial Process, 74 N.C. L. Rev. 75 (1995).