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BANKRUPT

Stanford University Press

Contents

List of Figures and Tables..........................................................................................ixPreface.............................................................................................................xiAcknowledgments.....................................................................................................xxv1 the Legal Constitution of Markets.................................................................................12 Managing Corporate Breakdowns across national Frontiers...........................................................383 Constructing Global Norms for National Insolvency Systems.........................................................704 Attaining the Global Standard Terence C. Halliday, Susan Block-Lieb, and Bruce G. Carruthers.....................1225 Indonesia: the IMF as a reformist ally............................................................................1666 Korea: Legal Restructuring of the Market and State................................................................2117 China: Global Norms with "Chinese Characteristics"................................................................2478 Intermediation....................................................................................................2939 Foiling...........................................................................................................33710 Recursivity......................................................................................................36311 the Implementation Gap...........................................................................................400Notes...............................................................................................................429References..........................................................................................................463Index...............................................................................................................481

Chapter One

THE 1997 ASIAN FINANCIAL CRISIS alarmed many besides the Asian Tigers. Rapidly accumulating national financial meltdowns not only threatened the economic stability of East Asia but sent tremors across the global economy. So great was the alarm that the G-7 pressed for a restructuring of the international financial architecture. Powerful global actors strenuously advocated worldwide projects of institution building and law making, all directed to produce more robust markets. Within these was the law that governs corporate restructuring or failure-corporate bankruptcy law.

For the G-7, and the international organizations (IOs) subject to its influence, the Asian Financial Crisis spread so quickly and dangerously in part because orderly processes for dealing with failed firms simply did not function in any of the previously acclaimed Asian Tigers. This analysis led to an obvious prescription: robust markets required predictable mechanisms for weeding out inefficient firms or for giving them temporary protection while they reorganized themselves to compete effectively. In practice, however, this part of the reform package would involve much more than a change of laws. International organizations sought to implant entire corporate restructuring systems-substantive and procedural law, courts, out-of-court restructuring organizations, restructuring professions-and to integrate those with reformed banking systems.

Awareness of the integral role of bankruptcy systems in national and global markets did not emerge de novo in 1997. The dramatic transition from command to market economies in Central and Eastern Europe in the early 1990s focused the minds of consultants, bankers, investors, institution builders, and lawmakers on precisely what laws and institutions were needed in countries developing a market economy. The reform package included laws and organizations to handle something hitherto unknown under communism-corporate failure.

Even before the events of the 1990s, bankruptcy law was on the agendas of national lawmakers and bankruptcy practitioners. Along the road to European integration, finance ministers and Brussels civil servants alike recognized that cross-border trade would bring cross-border bankruptcies and that they needed a framework to handle the collapse of a multinational firm with assets and creditors in Spain, Ireland, Germany, or Britain. For precedent they needed only to look across the English Channel or across the Atlantic. In the 1980s several massive corporate collapses, most notably the Maxwell communications empire, sent creditors, insolvency practitioners, judges, and government officials scrambling to deal with a multinational whose affairs were organized in hundreds of subsidiaries spread across many national jurisdictions.

The effort to retrieve value from failing companies stemmed substantially from two earlier national initiatives (Carruthers and Halliday 1998). In 1986 the British Parliament enacted the English Insolvency Act, which Mrs. Thatcher's government had intended as a way to help save companies before they were beyond hope. She also intended to alter how company directors did business-to "clean up" the market, as her ministers proclaimed, and make it safe for the British investing public. Even more influential was the passage in 1978 of the U.S. Bankruptcy Code. In this far-reaching reform, Congress enacted the most ambitious effort yet to shift the concept of bankruptcy law from a legal mechanism for liquidating a company to an enabling mechanism for company rescue. This emphasis on corporate rehabilitation would eventually propagate across the world.

In short, starting from scattered law reforms in the 1970s and 1980s, a quickening pattern of legal change came to characterize one of the hallmarks of capitalist markets. The chief legal instrument for weeding out failing firms found its way into the formulas of global organizations and sovereign states as they tried to build a new national and transnational market architecture. This book shows how it happened. Previously we analyzed the landmark legislation in the United States and Britain that marked the beginnings of this worldwide movement (Carruthers and Halliday 1998). Here we attend to the more recent years that brought this global movement toward fruition. It is a process that allows us to engage various arguments about the causes, consequences, and pattern of globalization and also about the role of law in supporting a market economy. Furthermore, we can consider the role of experts and their ideas in policy reform and institutional design.

This global enterprise brought law and markets into a paradoxical conjunction. On the one hand, the world's dominant capitalist nations and many powerful IOs sought coherent global standards to rectify the absence or inadequacy of laws that rendered markets so fragile. On the other, IOs offered so many competing standards that the fate of any one was placed into the hands of nation-states who were their ultimate "consumers." This "market" for standards shaped the standards for markets. Law's global markets, therefore, made law the arbiter of markets and markets the arbiter of laws.

Pragmatism and Theory

The reform of bankruptcy law and institutions resulted from a...