March 2010 Vol. 108 No. 5 THE REVIEW

Assessing the Chrysler Bankruptcy

Mark J. Roe & David Skeel

Chrysler entered and exited bankruptcy in forty-two days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo-sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the nineteenth- and early twentieth-century equity receiverships, and that its potential for disrupting financial markets surrounding troubled companies in difficult economic times, if the decision is followed, is more than small.

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