Cram Down in Bankruptcy Proceedings
February 12, 2025
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Bankruptcy is one of the natural states which a company may find itself in. Entrepreneurship is primarily about taking risks. When companies take risks, some of them succeed, whereas others fail. Hence failure is a natural part of the business. However, many critics of bankruptcy laws believe that there isn’t a need for an elaborate law to deal with the phenomenon of bankruptcy. Just like other contracts between the company and its creditors are left between the two parties, the bankruptcy situation can also be dealt with in the same way. According to these critics, the legal system only adds complication and expense and provides very little in return.
In this article, we will argue that this is not the case. The bankruptcy law is neither redundant nor wasteful. Instead, it is the existence of the bankruptcy law, which allows companies to function during a financial crisis.
Example: The Great Recession of 2008 is the perfect example to showcase the efficiency of the bankruptcy laws. Five big banks in the United States were about to go bankrupt. However, since their bankruptcy would cause a systemic crisis, the government lent money to them. At that time, it was highly criticized. It was considered to be subsidizing private excess with taxpayers’ money. However, this money kept the banks in going concern. Today, all the banks continue to survive, and the taxpayers who lent money have also been able to make a decent profit.
Hence, bankruptcy laws definitely add value. The business world would not be a better or more efficient place without them.
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