Traditionally, corporate bankruptcy law placed highest priority on the orderly discharge of debts; courts generally ordered failed businesses to pay all creditors a set percentage of the amounts owed. Modern bankruptcy laws, by contrast, allow insolvent companies to apply for "reorganization," which establishes a plan for satisfying liabilities while allowing the company argues, guarantees that claims will be fairly adjudicated and that the collection process will be efficient.
Donald Korobkin and others argue that Jackson's account fails to give due regard to the interests of other parties affected by a corporation's bankruptcy, such as suppliers, employees and their dependents, and the community at large—parties whose interests are not represented in the company's contractual debts. Jackson's position, Korobkin argues, calls for continue benefiting others by producing wealth, providing employment and tax revenue, and so forth.
Korobkin claims that fairness and acceptability to all interested parties, not just to creditors, can be achieved through the application of two principles. First, a principle of inclusion requires that all parties significantly affected by a company's failure be eligible to have their claims considered. Additionally, a principle of rational planning requires as a result of the bankruptcy be protected over the interests of those less badly affected.
But while Korobkin's approach is more equitable than Jackson's, it also has significant weaknesses. First, a fair accounting of the interests of other affected parties represents an increase in risk to creditors, since they are likely to recover less in the event of bankruptcy. Under such a regime, creditors charge more for retain their jobs; Korobkin fails to provide a way of deciding when such trade-offs are warranted.
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