The Myth of the Residual Owner: An Empirical Study

Abstract

Washington University Open Scholarship 67 S. CAL. L. REV. 1107, 1112 (1994) (proposing to abolish reorganization proceedings so that investors can give managers securities that align the interests of managers with those of the firm); David Arthur Skeel, Jr., The Nature and Effect of Corporate Voting in Chapter 11 Reorganization Cases, 78 VA. L. REV. 461 (1992) (proposing to put unsecured creditors in control on the theory they are usually the residual owners). 4. See infra notes 10-18 and accompanying text. 5. For example, Skeel recognizes the difficulty in attempting to identify the residual class, but nevertheless assumes throughout his discussion that a single such class exists. See Skeel, supra note 3, at 480 ("The residual class is the first class that will be impaired if the plan proponent seeks to compensate as many classes in full as the firm's assets will allow.").

Private Benefits Without Control? Modern Chapter 11 and the Market for Corporate Control

“…Enforcement of a fiduciary duty to the corporation is impossible without a full valuation of those distributions. 70 It is noteworthy that in all three cases we study, a coalition of creditors together with either a controlling shareholder or the board are effectively calling the shots. It points to, but does not provide definitive proof, that in coalition led cases extra attention is needed for the terms of the offer.…”

Residual Claimant Theory

“…The residual claimant theory holds that after fixed claimants have received their compensation for their contribution, the residual claimant could catch whatever is left from the income stream. In the corporate context, shareholders are treated as residual proprietary claimants who could "reap the marginal dollar" of the corporate profits and "suffer the marginal dollar" of any corporate losses as well (LoPucki 2004(LoPucki , pp. 1343(LoPucki -1344.…”

Debt Valuation and Chapter 22

“…35 Even though objections by unimpaired creditors are quite common, courts typically hold that a creditor whose rights are unimpaired under the plan has no right to object to confirmation. 36 Though there may be no legal impairment, the default risk of senior or secured 33 Their study uses US Airline secured bond yields and collateral. 34 In re Mirant Corporation, et al (Bankruptcy Court, Northern District of Texas, case n. 03-46590-DML-11, 2005) the Court denies the motion by a senior creditor (unimpaired and, hence, not entitled to vote), who argues that the plan actually impairs the Senior Notes and so entitled to vote.…”

“…This possibility has strong empirical support. LoPucki and Whitford (1993) and LoPucki (2004) find that senior secured classes are typically left unimpaired or, when impaired, the impairment involves all classes. In the dataset used by LoPucki and Whitford (1993) we could analyse the treatment of each class for 31 Chapter 11 cases.…”