Journal of Legal Research

Journal of Legal Research

Legal Effects of Corporate Reorganization under U.S. Law

Document Type : Original Article

Authors
1 Department of Private Law, Science and Research Branch, Islamic Azad University, Tehran, Iran.
2 Associate Professor, Department of Private and Economic Law, Faculty of Law and Political Science, Allameh Tabataba'i University, Tehran, Iran
3 Department of Private Law, Isfahan Branch, Islamic Azad University, Isfahan, Iran.
Abstract
Business corporations play an essential role in economic development, job creation, the circulation of wealth, and the provision of services. When financial crises lead to bankruptcy and liquidation, however, society may suffer from the loss of these enterprises and their resources. Many legal systems therefore provide for corporate reorganization, which has various effects on the corporation itself and its directors, creditors, and shareholders. Using a descriptive-analytical approach based on library research, this article examines the principal legal effects of the reorganization of public companies on these four groups under U.S. law. The findings indicate that reorganization may have both positive and negative consequences for each group. For the corporation, the principal effects include the possibility of continuing its operations, protection of its assets against certain enforcement actions, and discharge of pre-confirmation debts, subject to statutory requirements and exceptions. For directors, reorganization may involve changes in management, the desirability of which remains controversial, or the continuation of their duties subject to oversight. For creditors, the principal effects include the prospect of greater recovery on their claims and, in certain circumstances, the conversion of their claims into shares in the company. Shareholders, meanwhile, may face restrictions on the transfer of shares and bear costs arising from the reorganization process.
Keywords

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