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Foreword: Bankruptcy’s New and Old Frontiers

This Symposium marks the fortieth anniversary of the enactment of the 1978 Bankruptcy Code (the “1978 Code” or the “Code”) with an extended look at seismic changes that currently are reshaping Chapter 11 reorganization. Today’s typical Chapter 11 case looks radically different than did the typical case in the Code’s early years. In those days, Chapter 11 afforded debtors a cozy haven. Most everything that mattered occurred within the context of the formal proceeding, where the debtor enjoyed agenda control, a leisurely timetable, and judicial solicitude. The safe haven steadily disappeared over time, displaced by a range of countervailing forces and a cooperative bankruptcy bench. Lenders, especially debtor‐in‐possession (DIP) financers, gradually began to shape the trajectory of many proceedings. They today determine the course of most of the cases. More recently, additional players such as hedge funds and equity funds have also entered the scene, altering the bargaining dynamic. New financial instruments complicate debtors’ capital structures and creditor incentives. Even the sites and modes of decisionmaking have shifted, as today’s key decisions are negotiated and embedded in contracts concluded even before the debtor files for bankruptcy. The changes, which continue to accumulate, are fundamental.

Congress has given a gentle assist to a few of these changes. Sometimes this has followed from direct intervention, as when Congress amended the Code to diminish the debtor’s agenda control of judicial reorganization proceedings. At other times the effect is indirect, as when Congress encouraged the use of derivatives and other new financial instruments by largely exempting them from key bankruptcy provisions such as the automatic stay that requires other creditors to halt any collection efforts. Whether direct or indirect, most of the legislative interventions have been of minor importance and the statutory framework is largely identical to that enacted in 1978. The changes have been driven by innovations in reorganization practice and judicial interpretation. It is a dynamic situation. Some of the most important and controversial of these new developments, such as the use of restructuring support agreements to lock up votes for a potential reorganization, will likely have seen further evolution by the time this Foreword appears in print.

This Foreword provides context for the Symposium’s academic contributions by recounting the historical developments that have brought us where we are. After chronicling the origins, New Deal redirection, and recent evolution of corporate reorganization, we describe some of the remarkable and often counterintuitive insights the articles in this Symposium offer for the current moment. We conclude by venturing a few thoughts about the future. As we shall see, the Nietzschean vision of history as eternal recurrence has surprising explanatory power in the bankruptcy context.