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DISPELLING MYTHS ABOUT BANKRUPTCY

August 31, 1990



MADISON, WIS.

Contrary to popular myth, Chapter 11 bankruptcy does not seem to provide a haven for bad management. This is one finding of a new University of Wisconsin study of 43 corporate bankruptcy reorganizations, conducted by law professors Lynn LoPucki and William Whitford. The study finds that:

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In 40 of the 43 cases examined the chief executive officer lost his job by the end of the reorganization. About half of these resigned before bankruptcy was filed, and the company's creditors often played a major role in finding replacements.

The businesses often came out of reorganization drastically different in size and nature from before bankruptcy. Braniff Airlines and Baldwin-United, for example, were less than 25 percent their previous size.

In 14 percent of the cases, it was the creditor, not the debtor, who filed the bankruptcy case.