Tactical Restructurings

The traditional legal account of a corporate debtor’s journey into and through bankruptcy reorganization naturally focuses on legal rights and entitlements, such as obligations arising under the debtor’s existing agreements and rights articulated in the U.S. Bankruptcy Code. But the traditional legal account does little to probe why these prior agreements and transactions were entered into in the first place, and how they interact with the bankruptcy system to generate predictable outcomes. Rather, the traditional legal account applies a presumption that the debtor’s financial characteristics, qualities, and features (what this Article calls “restructuring attributes”) are not premeditated, at least insofar as a future bankruptcy filing is concerned. In contrast, this Article advances a theory of “tactical restructurings,” which acknowledges that corporate debtors engage in deliberate prebankruptcy planning to achieve the ideal restructuring attributes and thus gain significant advantages in a future bankruptcy. By illuminating these understudied aspects of commercial restructurings, this Article contributes to a broader understanding of Chapter 11 bankruptcy as a dynamic rather than static process. Simply by manipulating key variables and inputs that are almost entirely within their control, debtors and their preferred stakeholders control the behavior of the Chapter 11 system and effectively lock in restructuring outcomes.